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Personal Financial Planning — Part 5: Managing Investments · 3 of 10
Personal Financial Planning — Part 5: Managing Investments
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Implementation Playbook

Personal Financial Planning — Part 5: Managing Investments Gitman, Joehnk, and Billingsley
action-plan getting-started progression sequence

Key Principle

The book's advice translates into concrete action sequences. Each major investment type has an ordered process that reduces information asymmetry and enforces discipline.

1. Getting Started (from Chapter 11)

  1. Secure prerequisites: adequate insurance + 3-6 months emergency savings (p. 350)
  2. Quantify your goal: use Worksheet 11.1 to calculate lump-sum or annual savings needed (p. 355)
  3. Write an investment plan: specify target return, time horizon, and vehicle types (p. 355)
  4. Open a brokerage account: choose broker type matching your advice needs (p. 365)
  5. Start with a balanced mutual fund (~$1,000 minimum) for instant diversification (p. 385)
  6. Invest regularly (monthly or per pay period) regardless of market conditions (p. 385)

2. Building a Stock Portfolio (from Chapter 12)

  1. Set allocation targets: decide equity percentage based on life stage (p. 384)
  2. Screen by ROE and P/E: use ROE as primary filter, flag extreme P/Es (p. 406)
  3. Match stock type to objective: blue-chip for income, growth for appreciation, index for passive (p. 408)
  4. Compute expected return: use approximate yield formula; invest only if expected > required (p. 412)
  5. Enroll in DRPs for all dividend-paying holdings (p. 414)
  6. Never time the market: invest consistently and hold long-term (p. 414)

3. Selecting Bonds (from Chapter 12)

  1. Compute taxable equivalent yield for munis vs. taxable bonds (p. 421)
  2. Buy investment-grade only (BBB/Baa or better) unless specialist (p. 423)
  3. Match strategy to rate outlook: short/high-coupon in rising rates, long-term in falling rates (p. 428)
  4. Hold zeros in tax-sheltered accounts to avoid phantom income tax (p. 421)
  5. Check call provisions before buying — callable bonds cap upside (p. 421)

4. Choosing Mutual Funds (from Chapter 13)

  1. Define objectives first — income, growth, or balanced (p. 454)
  2. Eliminate non-matching fund categories (p. 454)
  3. Filter for no-load/low-load funds with low expense ratios (p. 454)
  4. Evaluate on 4 dimensions: performance, risk, management, expenses (p. 454)
  5. Use 8-point checklist: objective, risk, expenses, management, track record, services, tax efficiency, size (p. 470)
  6. For 401(k): capture full match, use index funds, cap company stock at 10-20% (p. 455)

5. Adding Real Estate (from Chapter 13)

  1. Evaluate macro factors: economy, rates, supply/demand, regional conditions (p. 461)
  2. Choose vehicle: REIT for passive, direct ownership for active management (p. 464)
  3. For REITs: evaluate AFFO, NAV, LTV, property quality (p. 465)
  4. For direct property: compute NOI and cap rate (p. 463-464)
  5. Leverage cautiously: only when expected profit clearly exceeds borrowing cost (p. 462)
  6. Hire a tax consultant before buying investment real estate (p. 462)

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