Want the Best Investment Plan? Here's How You Can Build One!
For building the ideal investment plans, you will have to understand the reason for investment. When you are clear with your objective, it becomes easier to figure out the choices that will most likely get you at that point.
Here are the 5 questions, which will help you in building a good investment plan depending on your objectives.
What is the Purpose of Investment?
You should select your investment with the primary objective of income, growth, and safety. First of all, you should decide, what is most important for you amongst those characteristics.
Are you in need of current income for living on your years of retirement, growth so that your investments can offer income later, or if it is the safety that is your priority?
In case you are 55 years old or above, before creating an investment plan, you must prepare a particular kind of financial plan, which is more of a plan for retirement income. Such plans project the values of your financial accounts including withdrawals and deposits if any.
It also helps you in identifying the time when you may have to use these funds. After you have a clear frame of time, you will know if you want to use your short-term, mid-term, or long-term investment plans.
What Amount can you realistically keep aside for the Purpose of Investment?
A lot of investment options involve minimum amounts of investment. Therefore, before laying a solid plan of investment, you need to define an amount that you can invest. Are you able to make regular contributions every month or have a lump-sum amount with you?
Some of the index funds let you open an account with a little amount and then establish an automatic investment that begins with a very little monthly amount that would transfer money out of your checking account to the investing account. Such an investment will help in reducing market risk.
In case you have a large amount to invest, you will obviously have more options available with you. In such a case, you would want to make use of different investment plans for minimizing the risk of selecting only one. The most essential decision you will be making is the amount you will be allocating in bonds v/s stocks. Another important thing to decide is whether you would be working with a financial advisor or would be building your portfolio.
What is your Risk Bearing Capacity?
Some of the investment options involve as much risk as losing all your money. Such investments may be very risky for some of you. One simple way of reducing the risk of investment is diversification. This will not stop the swings the value of investment entirely; however, you will be able to reduce the risk of an entire loss because of bad timing or any other unfortunate situation.
You need to be careful about purchasing only for high yield investments. The term ‘high returns with low risk’ is almost fictional. It is always better to gain moderate returns instead of swinging for the fences. In case you wish to swing, you must be prepared for a backfire as you may experience huge losses.
When would you need the Invested Funds Again?
Deciding a time frame you can go along with is very important. In case you need the funds for purchasing a car in one or two years, you will have to establish a different type of investment plan than putting your funds in a plan for the future on a monthly basis.
In the former case, your main focus is safety, not losing your funds before the purchase in the future. In the latter situation, you will probably be investing for retirement income, and considering retirement is way in the future, it would be irrelevant where your account value stands after a year.
What you are probably concerned with is what choices can help you in having an account that is worth the most by your age of retirement. If you talk realistically, a significant growth will usually need at least five or more years duration in the financial market.
What should be your Choice of Investment?
There are many people who purchase the first investment plans that they come across. It is always better to lay out a proper list of the choices, which will meet your determined objectives. After that, you can take your time for understanding the pros & cons of all these options. Next, you can come down to the final investment options that seem to be ideal for you.
Some of the options are good for long-term retirement funds, others can be more speculative, meaning you can probably put some “take a chance” or “play” money in them; however, no chance of putting all your savings for retirement in them.