How to develop an investment plan
To create a working investment plan is not just to open a savings account and buy a couple of random shares. First you need to understand the personal current financial situation and how you want to make it at the expense of investments in the future. After that, you need to identify the goals and choose the appropriate solutions..
It’s never too late to start work on a personal investment strategy. Everyone has chances for its full implementation..
1 part
Choose an investment option suitable for age
Age has an impact on investment strategy. The younger you are, the more risk is justified. You have more time to recover from failures in market downturns, crises and mistakes.
When the investor is 20 years old, he can allocate most of the money for aggressive investments. Growth-oriented and small-cap companies.
If the investor is close to retirement, he forms a portfolio of less aggressive options and considers companies with stable income and enterprises with large capitalization.
Determine your current financial situation
Be aware of what kind of income you have. Determine how much you can allocate funds for investing. Look at the budget, subtract the monthly expenses and set the amount that is available for investment. Be sure to create an emergency fund (a stock of money that covers 3-6 months of expenses).
Set a personal risk threshold
The risk threshold is a rule that determines how much risk an investor is willing to take on. Even as a young person, a person may not be ready to take risks. He will choose investments that match his “boiling point”.
Stocks are more volatile than bonds, savings and savings bank accounts.
The risk and the size of the potential benefits mutually affect each other. The greater the risk, the greater the potential profit. Investors get the best results for the right, but “dangerous” decisions. It is important to reasonably evaluate the fundamentals shown by the company before buying its shares.
We wrote about how to choose the right stock. here.
Part 2
Set goals
The idea of setting a goal is to hold assets and manage them in a long-term strategy, with a clear understanding of why this is for you. Regardless of aspiration, any investor will need a diversified portfolio. What do you want to do with the money you get through investing? Retire early? Buy a good home? Trailer for travel? Give an answer to this question..
If the goal is aggressive, you need to replenish and increase capital more often, and not turn to risky options. So, most likely, you will achieve the desired result, and not lose money on one of the unsuccessful decisions.
Choose a time frame for your goals
How soon do you want to achieve your financial goals? This question will help with the choice of type of investment..
• If you are interested in getting a good and quick return on investment, and are also willing to take risks, then choose aggressive options. But do not forget that they are associated with the opportunity not only to earn a lot, but also to lose a lot..
• If you want to achieve goals gradually and steadily, choose a safe investment that gives a small, but almost always guaranteed profit. Bank deposits, federal loan bonds and shares of large companies with dividend yield.
Determine liquidity
A liquid is an asset that can be easily sold at a price close to the market. This suggests that the investor has the opportunity to quickly get money on hand, if necessary.
• Stocks, bonds and investments in ETF highly liquid. They can be quickly sold..
• Real estate and fixed-term bank deposits are less liquid. Converting them into cash takes time.
Part 3
Explore Options
There are many approaches for creating a plan. Explore all options to choose the one that best suits your personal goals, income and risk tolerance..
Explore financial opportunities with long-term and short-term horizons. Shares, bonds, mutual funds, ETFs, bank deposits, currency, precious metals, real estate. Understanding the features of these tools is essential for every investor’s strategy..
Remember that a portfolio must be diversified. It is impossible to refuse stocks or bonds, but also to be fully purchased with only one type of asset, too.
If you cannot cope with high risk, then make up a portfolio of 15% of highly profitable, but risky assets (stocks) and of 85% of stable, but less profitable options (bonds, deposits).
Create an investment strategy
Decide how you want to diversify (distribute the investment). You can’t “keep all the eggs in one basket,” according to an American proverb that warns against excessive risk. For example, every month you can send 30% of your investment capital to stocks, 30% to bonds, and the remaining 40% to a savings account. Adjust these proportions to your goals and risk appetite..
Make sure your plan meets your risk threshold.
If you give 90% of the income on stocks every month, you can lose a lot of money in the event of a stock market crash. Such tactics are not reasonable and usually do not fit into the risk threshold of investors, but make sure that this is true for you too.
Consult with a financial advisor
If you do not know how to make an investment plan in accordance with your goals and risk, contact a qualified financial advisor.
Part 4
Rate the progress
Track investments once a quarter or half a year to understand that they meet expectations and bring you closer to your goal. If this is not the case, reevaluate the portfolio and distribute the investment in a different proportion.
A situation is possible when you do not invest enough money from each salary into investments. On the other hand, it may turn out that you are ahead of plans and transfer too much money into assets. Both of them are dangerous in their own way, so balance around the middle ground..
Similar articles
- Investment Rules for Building Long-Term Wealth
One of the things that a modern person should do is to turn to successful bankers, traders, financial consultants, in order to understand,…
- Investment Myths – 6 Popular Investment Myths
The word “investment” causes many associations in people. Some of them are close to the truth, while others are unfaithful. Debunking investment myths and…
- Redistribution of investments – an important rule that works
Looking at how stock indices grew throughout 2017 (Dow Jones Industrial Average, rose to 23,000 points by mid-October and then…
“I would like to know if there are any specific steps or guidelines to follow when developing a personal investment plan. What factors should be considered, and how can one create an effective strategy to achieve their financial goals? Any insights or recommendations on how to effectively manage investments would be highly appreciated!”