Develop an Investing Plan

Are you thinking about investing? Then you already know how significant planning is to successful investment. They say he who fails to plan has planned to fail; this could not be truer anywhere than in investment. You must create a plan that works for you by identifying the investments that fit your risk tolerance and timeframe so you can achieve your financial goals faster.

Review the finances: The first thing you should right after your decision to invest is to assess your financial conditions. You can do this by listing your debts and assets. The assets would include your home, super, savings, and any other investment. Your debt is what you owe. Writing it down gives you a clearer view of how much you can invest and how to diversify your investment. You should also determine your expenses and have a budget in place.

Set Financial Goals: The next step is setting your financial goals which are things you plan to achieve financially. Write them down and arrange them in terms of long-term, medium-term, and short term. Long term is above five years, short is not more than 2 years, and medium is 2 – 5 years. When you set and define your goals in this manner, finding the right investment becomes easier.

Understand The Risk: Investing is about taking calculated risks. There is always the likelihood of losing some or all the money you put in either due to a drop in value or failure to meet your expectations. You have to understand risks such as interest rate risk, liquidity risk, Market risk, Currency risk, Sector risk, Concentration risk, Credit risk, Timing risk, Inflation risk, and Gearing risk. Understanding risks means knowing how to balance your risk against your return given your unique financial position. This is why you must also know your risk tolerance. Risk tolerance is your ability to withstand the impact of fall in the value of your investment. It would be influenced by many factors, such as age, income, health, financial goals, recovery capacity, etc.

Research Your Options for Investment; there are certain things to consider when picking an investment, and they include:

  • Returns: how much you expect to gain from the investment and whether it comes from the capital or income growth.
  • Risk: the risks involved and how comfortable you are to taking the risks
  • Time frame: the length of time you have to invest before you start getting returns
  • Liquidity: the ease at which you can trade the investment for money
  • Cost: the cost of buying and selling the investment
  • Tax: the percentage of tax you’ll pay on the investment earnings.

Build A Portfolio: your portfolio structure depends on your financial goals, risk tolerance, and investment time frame. When it comes to short term goals, low-risk investments are a better option as their value is usually stable, and you have access to your money. The opposite is the case for long-term investment since you can always ride through a rough patch and bounce back. The most important thing is to diversify.

Monitor Your Investment: Last but not least, review your investments to ensure they are performing well and according to expectations.