In planning your investments, perhaps the most critical factor is controlling risk. Our culture generally credits men as having better investment skills than women. But behavioral finance research shows that men tend to make more investing errors than women because of overconfidence.
Along the same lines, women may be more attuned to risk when making investment decisions. If anything, they have the opposite problem regarding finance in general: under-confidence. Yet, investing successfully isn't just about reaping returns; it's also about being able to sleep at night while being aware of risks and your individual tolerance for them.
Your risk tolerance should affect the design of your investment plan from the get-go. And you should have a clearly defined plan. An investment plan is like a road map to your destination. If you're in unfamiliar territory, you don't just get in the car and drive. You make a plan based on information. Your investment plan should balance anticipated returns with the risk, and the risk levels inherent in your investment vehicles should reflect your risk tolerance.
Successful investing is unlikely without a plan, and you should stick to this plan with steadfast discipline — until you have good reason to change it. Just about any plan that you can stick to is better than no plan at all.
In upcoming columns, we will discuss how to choose investments and assemble and maintain an investment portfolio to position for returns over the long term while managing risk.
This work is the opinion of the author and not that of ABC News.
Laura Mattia is a partner with Baron Financial Group, and a fee-only financial advisor. She's a Certified Financial Planner professional (CFP®), a Chartered Retirement Plan Specialist (CRPS®) and a Certified Divorce Planner (CDFA™) and holds an M.B.A. in accounting/finance. Her Internet radio show is Financially Empowering Women™ with Laura Mattia. A professor at the Rutgers University Business School, Mattia is completing a Ph.D. in financial planning from Texas Tech University; her dissertation is on how to help women plan for retirement.