The Three Stages of Investing

There are three basic steps or stages to investing. Any sound investment decision will go through all three stages, and skipping any of these steps will jeopardize the effectiveness of your investment decision. Being aware of these stages can help you analyze your own investment process and what, if anything, may be holding you back from having the financial security you desire.

Stage 1: Curiosity

The Curiosity Stage is when you first encounter an investment that you might be interested in; when it first shows up on your radar, so to speak. Many investments don't make it past this stage due to the inherent filtering process we go through when we encounter something new. "Do I take this seriously, or do I move on?"

The fact that we go through this screening process seems obvious at first. But if you are not aware of the implicit assumptions and prejudices you have that can influence your own personal screening process, then you may be blind to certain benefits or drawbacks to the investments that make it past your radar.

Stage 2: Research

The Research Stage is when you take the investments that make it through your initial curiosity screening and subject them to further investigation. What criteria you use at the Research Stage will depend upon what your overall investment plan is, but the important thing at this stage is to make sure that you have a sound financial plan and are applying your criteria as objectively as possible.

Stage 3: Action

All the planning in the world is moot if the planning does not result in action. It is not enough to have a financial plan that you never put into practice. Sadly, however, many people become gun-shy and never take any action on the plan they put together at stage 2.

People often forget that good long-term investing involves taking on a degree of risk, since that risk is usually minimized over the long-term and since the increased risk will yield greater long-term returns on good investments. Do not let any subjective phobia or fear of loss interfere with your ability to implement a plan that you know to be in your best interest.

If you know that you have a good financial plan, take whatever steps are necessary to put that plan into action and make it a reality. No one can take this action for you; you must be proactive about your own financial decisions.