{"concept":{"id":35,"slug":"investment-plan","term":"Investment plan","shortDefinition":"A set of criteria and rules defined in advance -- before the market moves and emotions get involved -- that guide decisions to buy, hold, or sell.","longDefinition":"An investment plan is a set of criteria and rules defined in advance -- before the market moves and emotions get involved -- that guide decisions to buy, hold, or sell. At a minimum, it defines what to buy and why, how long the investment is meant to be held, and under what specific conditions it would be sold. Its main function is to counteract the cognitive biases and behavior that cause the investor return gap: it gives an objective reference point to return to when the market moves sharply, instead of improvising a decision under emotional pressure. It doesn't eliminate market risk or guarantee a result, but it does reduce the odds that one impulsive decision derails an otherwise reasonable strategy."},"relations":{"requirement":[],"contrast":[],"related":[{"concept":{"id":34,"slug":"investor-return-gap","term":"Investor return gap","shortDefinition":"The difference between the return a market offers over a period and the return the average investor in that market actually achieves.","longDefinition":"The investor return gap is the difference between the return a market -- or a fund/ETF that tracks it -- offers over a period, and the return the average investor in that same market actually achieves. It isn't caused by the market performing differently for each investor, but by the investor's own buying and selling behavior: buying once prices have already risen a lot and selling once they've already fallen a lot, driven by the emotion of the moment rather than a prior plan. Cognitive biases -- in particular loss aversion and confirmation bias -- are, to a large extent, the cause of this behavior."}}],"calculatedBy":[]},"curricularPosition":[{"id":28,"moduleId":9,"slug":"how-to-build-a-decision-process-not-a-hunch","title":"How do you build a decision-making process instead of a hunch?","summary":"You know how to build a decision-making process defined in advance, instead of deciding on impulse or a hunch.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you know how to build a decision-making process defined in advance, instead of deciding on impulse or a hunch.\n\n## Content\n\nAn investment plan is a set of criteria and rules defined in advance -- before the market moves and emotions get involved -- that guide decisions to buy, hold, or sell. Its main function is to counteract the cognitive biases and behavior that cause the investor return gap, already covered in this module.\n\nA reasonable investment plan defines, at minimum, three things: what to buy and why -- specific selection criteria, not a hunch of the moment -- how long the investment is meant to be held -- the time horizon, already covered in an earlier module -- and under what specific conditions it would be sold, defined in advance, not decided in the heat of the moment during a sharp market drop or rise.\n\nThe key difference from deciding on impulse lies precisely there: when the market drops sharply and fear kicks in, a plan already written in advance gives you an objective reference point to return to, instead of improvising a decision under the effect of loss aversion.\n\nHaving a plan doesn't eliminate risk or guarantee a result -- market risk still exists, as you already saw earlier -- but it does reduce the odds that a one-off decision, driven by the emotion of the moment, derails a strategy that was otherwise reasonable.\n\n## Example\n\nAn investor who decides in advance to hold their investment for a horizon of several years, unless something fundamental changes in their personal situation, has a clear reference point to return to when the market drops sharply -- instead of deciding to sell out of panic in that same moment, something you already saw systematically reduces actual return.\n\n## Common mistakes\n\n- Thinking an investment plan guarantees a good result -- it reduces the risk of impulsive decisions, but it doesn't eliminate market risk.\n- Defining an investment plan that's too vague, like \"invest for the long term,\" without specific criteria for selection, horizon, and sell conditions -- a plan without specific criteria gives no real reference point when deciding under pressure.\n\n## Summary\n\nAn investment plan defines in advance what to buy, how long to hold it, and under what conditions to sell -- an objective reference point that counteracts the temptation to decide on impulse when the cognitive biases covered in this module show up.\n\n## Self-check\n\nWhy does an investment plan defined in advance help counteract loss aversion during a market drop?\n\nWhy doesn't an investment plan guarantee a good result, even though it does reduce the risk of impulsive decisions?","bodyHtml":"<h2>Objectives</h2>\n<p>By the end of this lesson you know how to build a decision-making process defined in advance, instead of deciding on impulse or a hunch.</p>\n<h2>Content</h2>\n<p>An investment plan is a set of criteria and rules defined in advance -- before the market moves and emotions get involved -- that guide decisions to buy, hold, or sell. Its main function is to counteract the cognitive biases and behavior that cause the investor return gap, already covered in this module.</p>\n<p>A reasonable investment plan defines, at minimum, three things: what to buy and why -- specific selection criteria, not a hunch of the moment -- how long the investment is meant to be held -- the time horizon, already covered in an earlier module -- and under what specific conditions it would be sold, defined in advance, not decided in the heat of the moment during a sharp market drop or rise.</p>\n<p>The key difference from deciding on impulse lies precisely there: when the market drops sharply and fear kicks in, a plan already written in advance gives you an objective reference point to return to, instead of improvising a decision under the effect of loss aversion.</p>\n<p>Having a plan doesn't eliminate risk or guarantee a result -- market risk still exists, as you already saw earlier -- but it does reduce the odds that a one-off decision, driven by the emotion of the moment, derails a strategy that was otherwise reasonable.</p>\n<h2>Example</h2>\n<p>An investor who decides in advance to hold their investment for a horizon of several years, unless something fundamental changes in their personal situation, has a clear reference point to return to when the market drops sharply -- instead of deciding to sell out of panic in that same moment, something you already saw systematically reduces actual return.</p>\n<h2>Common mistakes</h2>\n<ul><li>Thinking an investment plan guarantees a good result -- it reduces the risk of impulsive decisions, but it doesn't eliminate market risk.</li><li>Defining an investment plan that's too vague, like &quot;invest for the long term,&quot; without specific criteria for selection, horizon, and sell conditions -- a plan without specific criteria gives no real reference point when deciding under pressure.</li></ul>\n<h2>Summary</h2>\n<p>An investment plan defines in advance what to buy, how long to hold it, and under what conditions to sell -- an objective reference point that counteracts the temptation to decide on impulse when the cognitive biases covered in this module show up.</p>\n<h2>Self-check</h2>\n<p>Why does an investment plan defined in advance help counteract loss aversion during a market drop?</p>\n<p>Why doesn't an investment plan guarantee a good result, even though it does reduce the risk of impulsive decisions?</p>","sortOrder":3,"readingMinutes":6,"difficulty":"Básico","url":"/en/academy/fundamentals/investor-psychology/how-to-build-a-decision-process-not-a-hunch"},{"id":84,"moduleId":30,"slug":"how-do-you-periodically-review-a-portfolio","title":"How do you periodically review a portfolio?","summary":"You understand how and when to periodically review a portfolio to keep it consistent with the investor's risk profile and time horizon, beyond rebalancing a drifted position.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand how and when to periodically review a portfolio to keep it consistent with the investor's risk profile and time horizon, beyond rebalancing a drifted position.\n\n## Content\n\nModule 4 already explained when and by what criteria to rebalance a portfolio that has drifted from its target allocation -- by calendar or by deviation threshold. This lesson doesn't repeat those criteria: it covers periodic review in a broader sense, of which rebalancing is only one possible action, not the only one.\n\nPeriodically reviewing a portfolio means checking whether it's still consistent with the investor's risk profile and time horizon -- not just whether each position's weight has drifted from the original allocation. Life circumstances change: a change in income, an approaching financial goal, or a real shift in the investor's risk tolerance can justify reviewing the asset allocation itself, not just readjusting it to the one that already existed. This is different from rebalancing: rebalancing returns the portfolio to an already-decided allocation; reviewing the risk profile and horizon can lead to deciding on a different allocation -- and only then, if warranted, rebalancing toward it.\n\nThe investment plan, already covered in Level 1, is what gives this process discipline: it defines in advance when and by what criteria the portfolio is reviewed, instead of reacting impulsively to a specific market move. Reviewing a portfolio with that discipline reduces the odds that an impulsive decision -- selling out of panic during a drop, or concentrating the portfolio in whatever has performed best recently -- replaces the judgment already built in the earlier modules.\n\nThe periodic review is also the moment to reconsider the accumulated tax cost, already covered in Module 5: a review that ignores the capital gain generated by a sale, or the possibility of applying loss offsetting, can generate more tax cost than necessary without really improving the portfolio.\n\n## Example\n\nAn investor reviews their portfolio once a year, according to their own investment plan. In one of those reviews, they notice their time horizon has shortened significantly -- the moment they'll need that money is approaching -- and decide, for that reason, to reduce the weight of stocks in their asset allocation. This isn't a rebalancing toward the previous allocation, but a review that changes the target allocation itself.\n\n## Common mistakes\n\n- Confusing \"reviewing the portfolio\" with \"rebalancing the portfolio\" -- reviewing can lead to changing the target allocation; rebalancing always returns to an already-decided allocation.\n- Reviewing the portfolio reactively, only when the market moves sharply, instead of with the discipline set by the investment plan.\n- Selling positions during a review without considering the tax cost of that sale or the possibility of applying loss offsetting.\n\n## Summary\n\nPeriodically reviewing a portfolio means checking whether it's still consistent with the investor's risk profile and time horizon -- not just whether it has drifted from its target allocation. Rebalancing, already covered in Module 4, is one possible action resulting from that review, not the whole review. The investment plan gives the process discipline, and the accumulated tax cost should be considered at every review.\n\n## Self-check\n\nWhy isn't reviewing a portfolio the same as rebalancing it?\n\nWhy is it worth reviewing a portfolio with the discipline set by an investment plan, instead of reacting to a specific market move?","bodyHtml":"<h2>Objectives</h2>\n<p>By the end of this lesson you understand how and when to periodically review a portfolio to keep it consistent with the investor's risk profile and time horizon, beyond rebalancing a drifted position.</p>\n<h2>Content</h2>\n<p>Module 4 already explained when and by what criteria to rebalance a portfolio that has drifted from its target allocation -- by calendar or by deviation threshold. This lesson doesn't repeat those criteria: it covers periodic review in a broader sense, of which rebalancing is only one possible action, not the only one.</p>\n<p>Periodically reviewing a portfolio means checking whether it's still consistent with the investor's risk profile and time horizon -- not just whether each position's weight has drifted from the original allocation. Life circumstances change: a change in income, an approaching financial goal, or a real shift in the investor's risk tolerance can justify reviewing the asset allocation itself, not just readjusting it to the one that already existed. This is different from rebalancing: rebalancing returns the portfolio to an already-decided allocation; reviewing the risk profile and horizon can lead to deciding on a different allocation -- and only then, if warranted, rebalancing toward it.</p>\n<p>The investment plan, already covered in Level 1, is what gives this process discipline: it defines in advance when and by what criteria the portfolio is reviewed, instead of reacting impulsively to a specific market move. Reviewing a portfolio with that discipline reduces the odds that an impulsive decision -- selling out of panic during a drop, or concentrating the portfolio in whatever has performed best recently -- replaces the judgment already built in the earlier modules.</p>\n<p>The periodic review is also the moment to reconsider the accumulated tax cost, already covered in Module 5: a review that ignores the capital gain generated by a sale, or the possibility of applying loss offsetting, can generate more tax cost than necessary without really improving the portfolio.</p>\n<h2>Example</h2>\n<p>An investor reviews their portfolio once a year, according to their own investment plan. In one of those reviews, they notice their time horizon has shortened significantly -- the moment they'll need that money is approaching -- and decide, for that reason, to reduce the weight of stocks in their asset allocation. This isn't a rebalancing toward the previous allocation, but a review that changes the target allocation itself.</p>\n<h2>Common mistakes</h2>\n<ul><li>Confusing &quot;reviewing the portfolio&quot; with &quot;rebalancing the portfolio&quot; -- reviewing can lead to changing the target allocation; rebalancing always returns to an already-decided allocation.</li><li>Reviewing the portfolio reactively, only when the market moves sharply, instead of with the discipline set by the investment plan.</li><li>Selling positions during a review without considering the tax cost of that sale or the possibility of applying loss offsetting.</li></ul>\n<h2>Summary</h2>\n<p>Periodically reviewing a portfolio means checking whether it's still consistent with the investor's risk profile and time horizon -- not just whether it has drifted from its target allocation. Rebalancing, already covered in Module 4, is one possible action resulting from that review, not the whole review. The investment plan gives the process discipline, and the accumulated tax cost should be considered at every review.</p>\n<h2>Self-check</h2>\n<p>Why isn't reviewing a portfolio the same as rebalancing it?</p>\n<p>Why is it worth reviewing a portfolio with the discipline set by an investment plan, instead of reacting to a specific market move?</p>","sortOrder":2,"readingMinutes":7,"difficulty":"Intermedio","url":"/en/academy/portfolio-management/building-a-portfolio/how-do-you-periodically-review-a-portfolio"}],"graphSummary":{"root":{"type":"concept","id":"35","depthFromRoot":0,"entity":{"type":"concept","slug":"plan-de-inversion","term":"Plan de inversión","excerpt":"Conjunto de criterios y reglas definidos de antemano -- qué comprar, cuánto tiempo mantenerlo y bajo qué condiciones vender -- que guían las decisiones en vez de la emoción del momento."}},"depth":1,"returnedNodes":1,"truncated":false,"hasCycle":false,"nodes":[{"type":"concept","id":"35","depthFromRoot":0,"entity":{"type":"concept","slug":"plan-de-inversion","term":"Plan de inversión","excerpt":"Conjunto de criterios y reglas definidos de antemano -- qué comprar, cuánto tiempo mantenerlo y bajo qué condiciones vender -- que guían las decisiones en vez de la emoción del momento."}}],"edges":[]},"relatedNews":[],"relatedEntities":[]}