Reprinted from the December 21, 2006 issue of Schwab Investing Insights®, a monthly publication for Schwab clients.

Recently, a San Franciscan in her early 50s called Schwab to discuss her retirement "plan," which amounted to her home, worth around $800,000; an expected inheritance from her father; and four stocks that she knew little about—one suggested by her former boss and the others by a former broker years ago. The problem is that a home, a potential inheritance and a grab bag of stocks is not a plan.

Just as you wouldn't attempt to build a house without an architectural blueprint, it's mighty hard to reach major financial goals like retirement without a well-conceived plan that you carefully implement and fastidiously manage. In fact, we think this process of planning, implementing and managing is the single most important component of successful long-term investing. Here are five steps to help you craft an investment plan that gets you where you want to go.

1. Set clear goals. Investing is a means to an end—it can help you achieve goals, like retirement, a home or your kids' education.

2. For every goal, make an investment plan. The odds of achieving your financial goals will increase when you develop a plan and follow it. People who planned for their retirement ended up having, on average, twice the assets of those who didn't plan, even after taking into account other factors that can affect savings.¹

3. Make sure your plan is thorough. It should contain five key elements: your goal and time horizon; starting point; planned savings and withdrawal rates; tolerance for risk; and realistic estimates of future returns. In a recent survey, investors expected the stock market (along with their retirement portfolios) to grow 13% per year.² Our research suggests 9% is more realistic.³



4. Understand your plan. A financial advisor may help craft your plan, but it's critical that you understand the assumptions in your plan, such as return estimates. After all, it's your money and your life!

5. Make planning an ongoing process. Markets, investment choices, tax rates and your life all change. You may need to revisit your plans annually, or when any life changes impact your assumptions—for example, if you retire early, or your kid gets a full scholarship.

There is a happy ending for our San Francisco client: Unlike the 44% of Americans who create a retirement plan by guessing how much they'll need to retire,⁴ she now has a plan and a well-diversified portfolio of mutual funds. Working with a Schwab consultant, she is well on her way to reaching her retirement goals.

Important Disclosures

1. Source: Annamaria Lusardi, "Saving for Retirement: The Importance of Planning," TIAA-CREF Institute, Research Dialogue, December 2000.
2. Source: JP Morgan Asset Management Survey, 2006.
3. For more details on Schwab's long-term capital market estimates, see "What Are the Long-Term Market Prospects for Stocks and Bonds?" on Schwab.com/marketinsight.
4. Source: Charles Paikert, "Workers Are Underfunded, Unprepared for Retirement," Investment News, April 24, 2006, p. 34.

This report is for informational purposes only and is not an offer, solicitation or recommendation that any particular investor should purchase or sell any particular security or investment strategy. Schwab does not assess the suitability or the potential value of any particular investment or investment strategy.

Past results are not indicative of future performance.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, Financial Planner or investment manager.

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