Doesn’t that headline describe so many aspects of life?

Want to lose weight? Move more and eat less. Simple, but not at all easy.

Investing is like that, too. There are certain foundational, relatively simple steps involved in developing and implementing a good investment plan. Staying with it, though, is often far from easy.

Two of the most important steps are determining your optimal asset allocation and choosing an investment strategy that’s appropriate for you.

Getting the allocation right

Asset allocation is about setting the right risk level for your investment temperament and time frame. A young person shouldn’t play it too safe, an older person shouldn’t take on too much risk.

My day job employer, Sound Mind Investing (SMI), has a free tool you can use to fairly quickly figure out your optimal asset allocation. It does a nice job of combining temperament and time frame to tell you whether your portfolio should be 100% equities, 80% equities/20% bonds, etc.

Getting the strategy right

As for choosing an investment strategy, one common mistake investors make is focusing too quickly on what to invest in. They see a headline about a stock that’s rocketing higher and think they should invest in that. Or they hear a friend mention an investment that has worked out well for them and they think maybe they should invest in that.

It’s far more effective to choose a good investment strategy and let the strategy dictate what to invest in.

A good investment strategy is one that’s objective and process-driven. It’s guided by rules, not intuition. It’s one that you understand; it makes sense to you and you can explain it easily to someone else. You understand how it’s designed to operate and how much risk is built in. Is it designed to match the market, outperform the market, or, for more conservative investors, generate acceptable, lower-than-the-market returns with less volatility?

A good investment strategy is one that’s acceptable to you. You’re willing to accept the volatility it’s likely to experience and you’re willing to do whatever work is required of you in order to follow the strategy. Some strategies don’t require you to take any action once implemented, like investing in a target-date fund. Others, like SMI’s active strategies, sometimes require you to sell one fund and replace it with another.

(Read also, Don’t Be Surprised If Target-Date Funds Miss Their Mark)

Are you following a specific investment strategy, or are your investments an ad-hoc collection of this and that?

The hard part

Once you’ve designed your portfolio around your optimal asset allocation and have selected a process-driven strategy, you implement it and just stay with it. That’s the “not easy” part—staying with it through thick and thin.

The market soars and you think maybe you should be investing more aggressively, or it falls and you think maybe you should be investing more conservatively. Even worse, you take action in the midst of a soaring or falling market. That’s when many investors get themselves in trouble. One of the hardest parts of being an investor is sitting tight when the market acts up.

It can help to:

• Remember, while the market’s overall trend line has been positive, it doesn’t move in a straight line. You should expect lots of ups and downs.
• Remember, if you have designed your portfolio around your optimal asset allocation and are following an objective, process-driven strategy that’s appropriate for you, then you have taken two of the most important steps that are within your control.
• Remember, true investing is not a get-rich-quick scheme. It’s about doing the right things that are within your control and continuing to do them month after month. As Proverbs 21:5 says, “Steady plodding brings prosperity; hasty speculation brings poverty” (TLB).
• Pay a little less attention to the market. You won’t get every market wiggle right, and you don’t have to. Get the big things right and then sit tight.

What have you found to be especially challenging as an investor? What has made it easier?