Investment Planning: Building Your Personalized Investment Plan

Go confidently in the direction of your dreams! Live the life you've imagined. As you simplify your life, the laws of the universe will be simpler. -Henry David Thoreau


Everyone needs to save for a rainy day. Once you have saved enough to take care of emergencies, you should start thinking about investing and to make your money grow. We can help you plan your investments so that you can reap adequate benefits and achieve your financial goals.

Investment Planning: How it Works?

Investment planning begins after you have taken into account your current and expected income level and have laid down your financial goals.

Investment planning needs to be done at the beginning of the year. Yes, you just might be feeling relieved now that all your tax-saving investments have been made. In fact, you might have even filed your income-tax returns. And after all this hard work, you want to take it easy for sometime.

Planning your investment focuses on identifying effective investment strategies according to an investor’s risk appetite and financial goals. There is a wide variety of investment options, including shares, bonds, mutual funds, bank deposits, real estate and futures and options. Through investment planning, one can identify the most appropriate portfolio mix.

Selecting securities isn’t the first thing investors do; choosing investments is just one of many elements in the process. To bulletproof your investing, you need to complete the tasks that detailed below. The following checklist outlines how you can build a successful investment plan that meets your individual needs and goals:

1.) Invest in a diversified investment program or systematic investment plan. Your risk tolerance level goes a long way in defining your investment approach. If you’re not averse to taking risks, then you may want to invest in an equity based mutual fund. Else, you may want to invest in a plan that involves bonds and other safe securities. Also, ensure that you keep in mind your investment objectives before you subscribe to an investment plan.

2.) Determine where you stand. Gain a good understanding of what your financial commitments are now and in the future. Make certain that you have an emergency fund and a savings plan.

3.) Determine your investment profile. This can be done by considering your risk appetite. There are mainly four types of investment profiles:

a.) Conservative (Low Risk Tolerance): Such portfolios comprise mainly (about 70%) of income assets, such as fixed interest and cash.

b.) Balanced (Average Risk Tolerance): This refers to portfolios with an equal emphasis on growth and income assets.

c.) Growth (High Risk Tolerance): Such portfolios comprise mainly (up to 80%) of growth investments, such as stocks and foreign currencies.

d.) High Growth or Aggressive (Very High Risk Tolerance): This refers to portfolios with more than 90% of the funds in growth investments.

4.) Clearly state your financial goals. How much do you need? When do you need it? How much risk can you tolerate? If you lost the principal of an investment, could you mentally recover and invest again?

5.) Determine the appropriate allocation of your personal assets for your age (young adult, middle-aged, retiree, and so on). Develop a regular investing program and stick to it regardless of market volatility.

6.) Select the investments that meet your financial goals and risk-tolerance level. How much time do you have (in years) to invest? Should you be an active trader and invest often during the day or a passive investor with a buy-and-hold policy?

7.) Analyze your investment portfolio or candidates. Before you call your online broker, make certain that you can tell a child in two minutes or less why you want to own a particular investment. Determine how long you plan to hold the security and decide at what price you will sell (and take your profits or cut your losses).

8.) Select a reliable online broker that suits your needs. Avoid mutual fund loads (a sales charge added to the purchase or sale of a mutual fund) and high fees. Use automatic investment plans, dividend reinvestment programs, investment clubs, and other programs to reduce brokerage commissions.

9.) Review your investment plan regularly. Monitor your investment portfolio and reevaluate your goals on a regular basis. This helps in fine-tuning a portfolio to suit your current financial situation and a change in risk preference. Rank the performance of your investments and make the appropriate changes. You can expect that changes in general market conditions, new products that are introduced, and new technology will change how established businesses operate. Use this information to gain an understanding of when to hold and when to fold.

10.) Start the tax process. This is the most important task. Start the entire tax planning now. In the beginning of a financial year itself, human resource departments (for the employed) start making queries regarding tax-saving investments proposed for the entire year.

Accordingly, the employer deducts taxes from the monthly salary. And you do not want to fill up this form without having any idea about the investments that you will make during the year. That's because there could be serious consequences for your finances.

In case the numbers are too little, the employer will cut higher taxes, thereby reducing your salary. For instance, if investments of $ 40,000-50,000 have to be made after the provident fund deduction, the employers will cut $ 1,000-1,250 till they get the exact details.

Worse, if you declare a particular amount of tax investment and do not stick to it, there could be heavy cuts during the last few months of the financial year. This would stress your finances for a long period of time.

Your success as an investor depends upon your ability to choose the right investment options. This, in turn, depends on your requirements, needs and goals. For most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and return.

Just remember that investment planning helps you to decide upon the right investment strategy. Besides your individual requirement, your investment strategy would also depend upon your age, personal circumstances and your risk appetite. These aspects are typically taken care of during investment planning. (Investment Planning: Building Your Personalized Investment Plan)