Planning To Invest?

To make a solid investment plan, you have to know why you are investing. Once you know the objective, figuring out which choices are most likely to get you there becomes easier. The 5 questions below will help you build a sound investment plan based on your goals.

1. Which Purpose Are You Pursuing? 

inv must be chosen with the main goal in mind: safety, income or growth. The first thing you need to decide is which of those three characteristics is most important. Do you need current income to live on in your retirement years, growth so the investments can provide income later, or is safety (preserving your principal value) your top priority?

If you are 55 or older, before you create an investment plan, you really should make a specific type of financial plan which I call retirement income plan This type of plan projects your future sources of income and expenses, then projects your financial account values including any deposits and withdrawals. It helps you identify the point in time where you will need to use your money. Once you have a clear time-frame you know whether to use short, mid, or long-term investments.

2. How Much Can You Realistically Set Aside for Investing?

Many investment choices have minimum investment amounts, so before you can lay out a solid investment plan you have to determine how much you can invest. Do you have a lump sum, or are you able to make regular monthly contributions?

Some index mutual funds allow you to open an account with as little as $3,000 and then set up an automatic investment plan starting with as little as $50 a month which would transfer funds from your checking account to your investment account. Investing monthly in this way is called dollar cost averaging and it helps reduce market risk.

If you have a larger sum to invest, obviously more options are available to you. In that case, you'll want to use a variety of investments so you can minimize the risk of choosing just one. The most important decision you'll make is how much to allocate stock vs bond  Another key decision is whether to build your portfolio or work with a financial advisor.

3. What Should You Invest In?

Too many people buy the first investment product presented to them. Better to lay out a thorough list of all the choices that meet your stated goal. Then take the time to understand the pros and cons of each. Next, narrow your final investment choices down to a few that you feel confident about. Some investments are great for the long-term retired money. Others are more speculative, which means maybe you can put some "play money" or "take a chance" money into them, but not all of your retirement savings.