Investment planning is the strategy through which people looking to make a return identify their financial objectives and budget resources to meet them.
But what does this mean in practice? And how does it affect you?
It may feel time-consuming, or even daunting, but to help you fulfil your aspirations, this article addresses some of the key themes to consider as you embark on your investment planning journey.
What is the main objective of investment planning?
An investment plan helps you decide how much capital to allocate to asset categories such as stocks, bonds and alternatives, in order to maximise returns.
Evidently, each financial journey is different and unique, and there is no universal approach that will benefit everyone.
Investment planning requires a keen grasp of regular income and outgoings, understanding your assets and how much of your capital is left over each month. This will enable you to determine the amount you can add to boost your investment plan. Identifying your investing goals is the next step once you have calculated the value of your financial assets.
Through sensible investing, you can accomplish your life goals by building inflation-beating returns. For many investors, their primary aspiration is saving enough for retirement. For others, it might mean setting money aside for education or a new home.
Establishing priorities involves coming up with the right financial roadmap to help you realise these objectives. You will need to therefore consider the investment’s potential for offering financial safety, income generation, liquidity, minimised tax exposure and wealth creation opportunities. With intelligent investment planning, you can maximise value from your savings, building future financial security and freedom for you and your family.
Creating an investment plan
It is useful practice in investment planning to list your goals on a piece of paper to work out how much time you will need to achieve them.
An objective in under three years might be termed a short-term goal, whereas anything over 10 years is perceived as long-term. This will help prioritise which investments to select for your portfolio.
Formulating an investment plan involves following a series of core steps: assessing your existing financial situation, assessing your risk tolerance, selecting your investments carefully (whether financial, real estate, art or other), and also continually monitoring your progress to ensure you are still on track.
Assessing your financial health
Devising an effective investment plan requires a full and frank assessment of your financial situation.
You need to be knowledgeable about your income, assets, expenses and liabilities. To determine your net worth, you will need to calculate the full value of your personal assets and liabilities, including cash, home, car, cash, bank savings and any investments.
The total of your debts, such as credit card bills and any outstanding loans, should be deducted from your assets. This will enable you to weigh your income against expenses to get a figure on what you can save.
It is important to recognise your psychological capacity to take risky decisions, and there are online questionnaires you can complete to assist this understanding. This is fundamental in helping you find investment opportunities likely to offer the best return but at an acceptable risk threshold.
Research the market, look online or consult one of our advisers to understand the many investment options on offer. You will need to familiarise yourself with the returns, risks, taxable status and rules of these investments and asset classes, including equity, debt, gold, property and government securities. Consider also diversifying your selections to reduce risk in your portfolio when markets are turbulent.
Experts suggest a yearly review to ensure effective portfolio management optimising asset allocation, diversification and risk management. Failure to regularly monitor your investments could see your money underperform, bringing lower returns than anticipated.
Benefits of investment planning
With the right investment strategy plan, investors should be able to weigh up all objectives and risks, strategising how much capital can be invested while still taking care of other financial commitments.
This will not only provide investors with a structure, which can be revised as necessary, but also boost confidence when the going gets tough, such as during a market downturn.
Investment planning is often key to establishing financial freedom, security and safety, while helping individuals generate income, minimising budget costs and tax liability. An investment plan will help you schedule your investment regularly, efficiently manage income and spending, and increase your financial discipline. It can also provide a safety net in an emergency, and a cushion during periods of unemployment.
For further guidance on investment planning, call us at Hartey Wealth Management today to secure your financial future.
