Warren E. Buffett offers the following advice on the qualities of a successful investor. Buffett essentially suggests that a successful investor does not need an extraordinarily high IQ, exceptional business acumen, or inside information. To enjoy a lifetime of successful investing, you need a solid decision-making framework and the ability to maintain your emotions.

A successful investment strategy requires a thoughtful plan. Developing a plan is not difficult, but staying with it during times of uncertainty and events that seem to counter you plan’s strategy is often difficult. This tutorial discusses the necessity of establishing a trading plan, what investment options best suit your needs, and the challenges you could encounter if you don’t have a plan.

The benefits of developing a trading plan

You can establish optimal circumstances for experiencing solid investment growth if you stick to your plan despite opposing popular opinion, current trends, or analysts’ forecasts. Develop your investment plan and focus on your long-term goals and objectives.

Maintain focus on your plan

All financial markets can be erratic. It has experienced significant fluctuations in business cycles, inflation, and interest rates, along with economical recessions throughout the past century. The 1990s experienced a surge of growth due to the bull market pushing the Dow Jones industrial average (DIJA) up 300 percent. This economic growth was accompanied by low interest rates and inflation. During this time, an extraordinary number of Internet-based technology firms were created due to the increased popularity of online commerce and other computer-reliant businesses. This growth was rapid and a downturn occurred just as fast. Between 2000 and 2002, the DIJA dropped 38 percent, triggering a massive sell-off of technology stocks which kept indexes in a depressed state well into the middle of 2001. Large-scale corporate accounting scandals contributed to the downturn. Then in the fall of 2001, the United States suffered a catastrophic terrorist attack that sent the nation into a high level of uncertainty and further weakened the strength of the market.

These are the kinds of events that can tax your emotions in terms of your investment strategies. It’s times like these that it is imperative that you have a plan and stick to it. This is when you establish a long-term focus on your objectives. Toward the end of 2002 through 2005, the DJIA rose 44 percent. Investors who let their emotions govern their trading strategies and sold off all their positions missed out on this upturn.

The three deadly sins and how to avoid them

The three emotions that accompany trading are fear, hope, and greed. When prices plunge, fear compels you to sell low without reviewing your position. Under these circumstances, you should revisit the original reasons for your investments and determine if they have changed. For example, you might focus on the short term and immediately sell when the price drops below its intrinsic value. In this case, you could miss out if the price recovers.

An investment strategy that is based on hope might compel you to buy certain stocks based on the hope that a company’s future performance will reflect on their past performance. This is what occurred during the surge of the Internet-based, dot-com companies during the late 1990s. This is where you need to devote your research into a company’s fundamentals and less on their past performance when determining the worth of their stock. Investing primarily on hope could have you ending up with an overvalued stock with more risk of a loss than a gain.

The greed emotion can distort your rationale for certain investments. It can compel you to hold onto a position for too long. If your plan is to hold out a little longer to gain a few percentage points, your position could backfire and result in a loss. Again, in the late 1990s, investors were enjoying double-digit gains on their Internet-company stocks. Instead of scaling back on their investments, many individuals held onto their positions with the hope that the prices would keep going up. Even when the prices were beginning to drop, investors held out hoping that their stocks would rally. Unfortunately, the rally never happened and investors experienced substantial losses.

An effective investment plan requires that you properly manage the three deadly sins of investing.

The key components of an investment plan

Determine your investment objectives

The first component in your investment plan is to determine your investment objectives. The three main categories involved in your objectives are income, growth, and safety.

If your plan is to establish a steady income stream, your objective focuses on the income category. Investors in this category tend to be low-risk and don’t require capital appreciation. They use their investments as an income source.

If your focus is on increasing your portfolio’s value over the long term, your objective is growth-based. In contrast to the income category, investors strive for capital appreciation. Investors in this category tend to be younger and have a longer investment time frame. If this is your preferred category, consider your age, investment expectations, and tolerance to risk.

The final category is safety. Investors who prefer to prevent loss of their principle investment. They want to maintain the current value of their portfolio and avoid risks that are common with stocks and other less secure investments.

Risk tolerance

While the main reason for growing your portfolio is to increase your wealth, you need to consider how much risk you are willing to take. If you struggle with the market’s volatility, your strategy should focus more on the safety or income categories. If you are more resilient to a fluctuating market and can accept some losses, you might favor the growth category. This category has the potential for higher gains. Nevertheless, you need to be honest with yourself and the level of risk you are willing to take as you set up your investment plan.

Asset Allocation

As discussed in the previous sections, part of your investment plan is to determine your risk tolerance and investment objectives. After you establish these components, you can begin to determine how you will allocate the assets in your portfolio and how they will match your goals and risk tolerance. For example, if you are interested in pursuing a growth-oriented category, you could allocate 60 percent in stocks, 15 percent in cash equivalents, and 25 percent in bonds.

Make sure your asset allocation reinforces your objectives and risk tolerance. If your focus is on safety, your objectives need to include safe, fixed-income assets such as money market securities, high-quality corporate securities (with high debt ratings), and government bonds.

If your strategy focuses on an income category, you should focus on fixed-income strategies. Your investments might include bonds with lower ratings that provide higher yields and dividend-paying stocks.

If your focus is on the growth category, your portfolio should focus on common stock, mutual funds, or exchange-traded funds (ETF). With this category, you need to vigilant in managing your portfolio by regularly reviewing your objectives and adjusting them according to your risk tolerance and objectives.

Effective asset allocation helps you establish a guideline for properly diversification of your portfolio. This enables you to work toward your objectives and manage a comfortable amount of risk.

In beginning a home based business, one thing you will have to understand is that, like many things in life, it will take some finances to getting started. While start-up costs vary, your average start-up will be just a few hundred dollars. You need to take into consideration what it is going to take to get your business started and what type of resources you have available. You will want to watch your expenses in the beginning stages of your home business so as not to let yourself find yourself unable to meet your financial responsibilities.You will want to consider some ways that will help you in your new venture while still trying to support yourself and your family. Following are some ways in accessing the finances for your home based business:Working In The EveningDoing this will enable you to ease into your new home based business. By working it part-time in the off hours of your regular job, you will be able to tackle all the tasks needed to run your business gradually. This will aid in taking some of the financial pressure off your shoulders. You will find that your free time will be minimal but remember WHY you are starting a home based business. In a period of 6 months to a year, you may be able say good-bye to your J.O.B. and have more time to spend with your family than ever before.Working Part-TimeIf you aren’t really committed to “a job,” maybe consider picking up a part-time job and then spend the other time building your home business. This may put a little more pressure on you financially but it will allow you to devote more time to the growth of your business. As always, you will need to manage your finances a little more strictly in order to make sure you don’t find yourself in a hole.Fellow Workers Equal ClientsIf you’re in a home based business, you are more than likely going to be offering a service or product that you can use to leverage with. Remember that being an independent contractor, you work for yourself. You have many fellow workers that possibly could be potential clients, or better yet, reps. This definitely would help you in getting your business on the fast track. You just want to make sure your “prospecting” doesn’t interfere with your job performance. It would not sit well with your employer.Live On One SalaryThere are many couples that have made the sacrifice to live on one salary for a period of time while the other partner works the home business so it can turn a profit sooner than later. This may be tough but is doable. In order to avoid any financial and emotional heartaches, please make sure you have set a goal in terms of a time frame to make your home based business a profit.Extra CashThere are times that you find yourself with a little extra pocket cash. You may unexpectedly get some money from resources you didn’t expect (ie., gift, stocks, inheritance, etc.) Why not invest this in your business? Every little bit that does not come out of your pocket helps in the finances of your home based business.Borrow Money This is something that many do not like to do. Borrowing from friends and family may be tough because you may not have the support that you would like. But on the other side of the coin, you may get the encouragement and support, but also you may spark an interest in what it is you are investing in. Your friends and family could be a huge source of support and encouragement throughout the development of your home business.Before spending any money on your new business, be sure to cover all bases with your prospective business. Create a business plan that includes all the details on starting and running your business and the costs associated with it. By doing some of the things mentioned in this article, you will be able to come up with the finances for your home based business.

This is an interesting topic which I personally love to discuss. The other day I was visiting my friend and we were generally discussing about new ideas of business. It was than we ended up discussing about home based business ideas. Yes, you heard it right, we were discussing about home based business ideas.Today, having a family and being with them is what we all long for. If most of the time we are away from our families working for someone and doing a 9 to 5 job, what remains with us for spending quality time is hardly anything viewing the time it takes to reach home after bypassing heavy traffic and other chaos enroute on our way. That is when we though about beginning some home based business.We both came across some cool home based business ideas. Apart from our profession, we have listed down few of the common home based business for self employed entrepreneurs.1- Accounting – Since we both are from Accounting background, we were planning to set up an Accounting business at home, where we can contact companies and prepare their financial reports, accounts receivables and payables, tax planning, payrolls, balance sheet etc. This will allow us to work peacefully within home environment and without much distraction. What we will require is a separate telephone connection, a computer with an internet connection and a fax machine.2- eBay – If you love online auctions, than this is one great home based business idea. Whoever is willing to sell their items such as a car, bike, boat, or even houses can contact you to place their advertisement on eBay. Get clients, show them the item and make a decent commission on the sales made by you. Believe you me; this is something that can get a person addictive to eBay.3- Pet Grooming Centre – I have personally seen my friends who have started their own pet grooming centre at home. All it takes is just 1 pet per day. And mind you, people don’t mind paying pet groomers any amount as long as their pet is happy with the groomer. A little bit of experience and a pet training course is mandatory but nevertheless, this can be one enjoyable job and one of the best home based business ideas.4- Answering phone call business – Many clients whose calls are transferred to a voicemail often hang the phone without the need to speak on voicemail. This happens when the business hours are over or when the proprietor of the company is traveling. During such period they want someone to attend their business calls and inform them accordingly. You will need a separate phone connection and good diction of English language and local language to begin this business. If you can get 3-4 such clients, you can definitely make good income.5- Freelance photographer – If you are one among the few who are frequently complimented for beautiful photographs, this can be some of the great home based business ideas as freelance photographers can even auction their photographs over eBay or even conduct photography exhibitions where people can view and purchase the photographs at a premium paid to you. You will require a SLR high resolution top of the class camera for this business.