Investment Planning


The key to financial success is your investment plan. What is an investment plan? That’s the part of your overall financial plan that helps you figure out exactly how to build wealth you need for retirement, college education of your children, or a new house or car.

In an investment plan, you decide how much you want to put into certain kinds of investments to reach your overall goals. It is a structured plan that provides discipline and helps you stay on track.

So how do you prepare an investment plan to build wealth? Here are some simple steps:

Write a policy statement. Start with a goal by writing your plans like a policy statement. Decide what kind of investments you are comfortable with. If you want to invest in stocks, set minimum and maximum percentages for the particular stocks, industries, or market segments you want.

An investment plan should be tailored to a particular person’s situation.

Here are some of most basic and useful factors in writing your investment plan.

Risk tolerance. This should be your starting point. Consider both your attitude and capacity for risk. You may be willing to take chances you can’t afford. A high return comes with a higher risk. It’s called the “risk-return” trade off which is one of the basic rules in investing.

Asset preference. What kind of investments do you like? Do you like stocks? Bonds? Mutual funds? Real estate? Just be sure to study thoroughly first before you invest. Each investment class has its own risk. Better be informed with the risk together with possible returns on each of these investments.

Time horizon. How urgent do you need your money? This is called liquidity. We all know that each investment has a time horizon. You can’t just reap huge returns in just a short period of time. Otherwise, it will fall to quick-rich scheme, which is usually a scam. If you need your money in three years, your strategy will be much different than if your goal is 30 years away.

Objective. What are you aiming for your investment plan? Is it a plan to buy a house? Car? A plan for retirement won’t be the same as one to buy a house in five years.

Rebalance wisely. From time to time, you’ll need to adjust your mix of assets. Depending on your age, you may take advantage of the rise and fall of stock prices. The younger you are, the more possible for you to ride the volatility of stocks. Add some investment in other investment class as you work to increase your financial education.

Review and stay flexible. You need to review your investment plan from time to time to see if you should make changes. Your tolerance for risk most likely will change as you gain investing experience. You may become either more confident or more cautious. Life changes – like jobs, income, and retirement – will affect your plan.

Your investment plan is sort of a living document. It changes as you change. You have to have a degree of flexibility. However, the danger lies in being too flexible. Take the time to monitor your investments and learn about managing your money. Then use common sense and discipline you get from your policy statement to maintain an effective financial plan.

Plan your future. Write your own investment plan today.

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Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

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