Creating an investment plan that works takes more effort than just opening a savings account and buying a few random stock. In order to structure a plan that is set up correctly, it is important to understand what you want to accomplish with investments, define how to achieve those goals, and evaluate different types of investment options to decide which ones will help in achieving those goals. The good news is that it's never too late to create and implement a personal investment plan and start building a nest egg for the future.
Steps
Step 1. Set your goals for the future
A carefully structured investment plan can be a means of achieving both long-term and short-term goals. For example, a goal may be to generate funds for a child's college education using returns from certain types of investments. Alternatively, another goal could be to create a portfolio that generates income for retirement. Knowing what you want to accomplish will make it easier to adapt your investment plan to meet those needs.
Step 2. Decide how much you can initially use for investments
Depending on your goals, a broker can help you decide how much you should initially make available for investment. Keep in mind that most brokers will recommend that you have at least the same amount of money set aside in a savings account or other interest-bearing account, rather than putting all your money directly into stocks and bonds.
Step 3. Consider your risk tolerance
With most investments, taking on greater risks increases your chances of generating more profits, but it also means a greater chance of losing your investment. If you are a cautious person with money, a good place to start is to start your program by focusing on bonds and stock options, which are less risky and volatile. You can always try a riskier investment later once your understanding of market projections and trends increases.
Step 4. Diversify your investment selection
Rather than focusing strictly on the stocks associated with a particular sector, secure options that encompass several sectors. Also consider investing in bond issues and other relatively safe investments as part of your investment planning. Diversification helps protect you from the risk of large losses when a sector experiences a downturn, as there is a good chance that the losses created by a couple of investments will be offset by the capital gains made on the other investments.
Step 5. Know the market
Even if you have a great broker, make sure you learn how to read market reports, project movements with different stock issues, and generally how to predict what will happen to your investments in the future. Doing this often can help you avoid losses and even allows you to discover a new investment with great potential.
Advice
- Even the best investment plan may need adjustment when changes occur in the economy or your personal conditions change in some way. See such situations as opportunities to rethink your strategy, while still keeping your goals above all in your mind. This will give direction to your investing activities and it will be easier to see the big picture when dealing with what is happening today.
- Be sure to review your investment plan from time to time. Focus on how your current titles are progressing towards your goals, and make adjustments to those titles as needed. Keep in mind that when circumstances allow, you can always broaden the reach of your investment portfolio, hopefully generating higher returns that allow you to reach your goals as soon as possible.
