Invest smart today for a better tomorrow
To ensure that you invest your money wisely, it is important that you set out an investment plan. And, for a plan that works, you should know the reason for your investment. If you manage to figure out certain things, such as the objective of your investment and the amount to be put in, planning becomes easier.
So, here’s a quick guide that will help you set up a foolproof investment plan. Check it out!
Investment can be done with several purposes. It can be done to add up to your income, for the sake of financial safety in times of crisis or just for the financial growth. The first thing that you need to do while planning your investment is figuring out the purpose of investing. A well-defined goal will help you pick the best investment option.
Several investment choices have a certain minimum amount that can be invested. Therefore, in order to build a solid investment plan, you should know how much you can realistically set aside for the purpose of investment. Decide, whether you will be making regular monthly contributions or you will invest a lump sum amount.
Once you are clear with your budget, you can easily choose from the range of options. If you have a big sum to invest, go for bonds and stocks. You may also diversify your portfolio to minimize the risk. On the other hand, if you have smaller amounts, you may choose mutual funds. Also, ‘index mutual funds’ should be your choice if you currently have a fixed amount to invest and willing to make regular contributions afterwards.
When will you need this invested money again? This question can help you establish the time frame.
For instance, if you are putting your money to buy a car, you will need it in a year or two. On the other hand, if you are planning for your retirement, it is irrelevant to check for the return value in the next year. In both the cases, your choice of the option will vary.
Risk tolerance is simply the ability and willingness of an individual to take risks in his/her investment. While some investments are associated with low risk, some may entail the risk level 5, i.e. you may lose all your money. Unless you are a big businessman you don’t want to invest in high returns with high risk.
Therefore, to set an investment plan it’s important you analyse your risk tolerance. It will help you decide when to invest and where to invest.
People often tend to invest in the very first product presented to them. However, it’s not a correct approach. It is advisable to lay out a thorough list of all the choices that meet your predefined goal. The next step is to analyse the fors and against of each choice. Once you have listed the pros and cons, narrow down your final investment choices down to a few that you feel confident about.
Put them all together
Now you know all about planning an investment. Let’s rewind it -
Start with establishing a purpose, and then set a budget for it. Once you know your budget, define the time frame to choose the best investment option available.
So, when are you starting with your investment plan?