Sep 28 2017

How to Create an Investment Plan: 13 Steps (with Pictures) #investment #strategy #by #age

(Last Updated On: 29/09/2019)


How to Create an Investment Plan

Creating a viable investment plan requires a little more than simply establishing a savings account and buying a few random shares of stocks. In order to structure a plan that is right, it’s important to understand where you’re at and what you want to accomplish with the investments. Then, you’ll define how to reach those goals and select the best investment options to reach them. The good news is that it is never too late to create and implement a personal investment plan and begin creating a nest egg for the future.

Steps Edit

Part One of Four:
Assessing Where You’re At Edit

Select an age-appropriate investment option. Your age will have a significant impact on your investment strategy. [1]

  • Generally speaking, the younger you are, the more risk you can take. That’s because you have more time to recover from a market downturn or loss of value in a particular investment. So, if you’re in your 20’s, you can allocate more of your portfolio to more aggressive investments (like growth-oriented and small-cap companies for example).
  • If you’re nearing retirement, allocate more of your portfolio to less aggressive investments, like fixed-income, and large-cap value companies.

Understand your current financial situation. Be aware of how much disposable income you have available to invest. Take a look at your budget and determine how much money is left over for investments following your monthly expenses and after you have set aside an emergency fund equivalent to three to 6 months’ worth of expenses.

Develop your risk profile. Your risk profile determines how much risk you’re willing to take. [2] Even if you’re young, you might not want to take a lot of risks. You’ll select your investments based on your risk profile.

  • Generally speaking, stocks are more volatile than bonds, and bank accounts (checking and savings accounts) are not volatile. [3]
  • Remember, there are always risk trade-off’s to be made. Often, when you take less risk, you make less. Investors are richly rewarded for taking significant risks, but they can also face steep losses. [4]

Part Two of Four:
Establishing Your Goals Edit

Set goals for your investments. What do you want to do with the money you make from your investments? Do you want to retire early? Do you want to buy a nice house? Do you want a boat? [5]

  • As a rule of thumb, you’re going to want a diversified portfolio no matter what your goal is (buying a house, saving for a child’s college education, etc.). The idea is to let the investment grow over a long period of time so that you have enough to pay for the goal.
  • If your goal is particularly aggressive, you should put more money in the investment periodically rather than opting for a more risky investment. That way, you’re more likely to achieve your goal rather than lose the money that you’ve invested.

Establish a timeline for your goals. How soon do you want to reach your financial goals? That will determine the type of investments you make.

  • If you’re interested in getting a great return on your investment quickly, and you are prepared to take the risk that you could also see a great loss just as quickly, then you’ll select more aggressive investments that have the potential for significant return. These include undervalued stocks, penny stocks, and land that might quickly appreciate in value.
  • If you’re interested in building wealth slowly, you’ll select investments that generate a slower return on investment over time.

Determine the level of liquidity you want. A “liquid” asset is defined as an asset that can be easily converted to cash. That way, you’ll have quick access to the money if you need it in an emergency. [6]

  • Stocks and mutual funds are very liquid and can be converted into cash, usually in a matter of days.
  • Real estate is not very liquid. It usually takes weeks or months to convert a property to cash.

Written by CREDIT