Investment planning is the process of matching your financial goals and objectives with your financial resources. Investment planning is a core component of financial planning. It is impossible to have one without the other.
Investment planning is a process that begins when you are clear on your financial goals and objectives. Our Financial Planning process is designed to help you get clear on how to match your financial resources to your financial objectives.
There are thousands of different investments. The most commonly used are cash, equities, bonds and property. Each of these have different characteristics and a good investment plan will usually contain all of these.
By helping you set out clear and measurable goals, we can match the most suitable mixture of investments to each specific goal in the most efficient way. From the outset it is important to build a strong foundation and as your circumstance change, we can help you make any necessary adjustments to keep you on track.
The importance and benefits of investment planning are stated below:-
The savings created by the investment is very useful in difficult times. For example, death of the working individual in the family affects the standard of living to a great extent. That time the investment made by the working person becomes useful source of income of the family.
Before investing in any investment vehicle, a solid investment planning is required. If we do not plan then all our investments will turn into a mess. Planning is a very important step before investing.
The investment planning steps are as follows:-
This is the first step of investment planning. As soon as we are employed we should start saving. Whatever our salary is we should not spend all of it and start saving for our retirement and unforeseen emergencies.
“Someone is sitting in the shade today because someone else planted a tree a long time ago.”- Warren Buffett
There can be many unforeseen emergencies in our life such as life threatening diseases for which saving are important. We should also determine how much to keep aside every month for our savings. Some of the investment products require a very little amount to save. So even if we have less money to save, we should not worry about it.
We need to identify our short term as well as long term goals. This is how we start goal setting in investment planning. Our goals can be saving for a vacation or buying some gadget which we really want to own. This can be termed as short term goal as saving required for this is less than twelve months.
Payment of home loan requires 3-4 years of sayings and it can be categorised as medium term goal. Long term goals include child education and marriage.
Identifying and setting our goals is an important step in investment planning. It should be well defined by adding some value to it. We should have the clarity about the goals which we wish to achieve. Different goals require different investment planning like:
We should know our risk taking appetite. If we have just start earning then our risk taking appetite is very less. We should invest in those investment vehicles which has less like fixed deposits.
People who have ample money to save, their risk taking appetite in more. They should invest in those investment products which have higher risk like investing in index stocks or mutual funds. The risk taking analyse is a very important step in investment planning. One should also go through all the risks associated with the investment vehicles before investing in them.
After determining goals and risk taking appetite, the next step in investment planning is to create a savings portfolio. One should have a diversified portfolio which should include many investment vehicles such as stocks, gold, bonds, fixed deposit, real estate etc.
The main purpose to have a diversify portfolio is to diversify the risk associated with investment vehicles. Some investment tools may be less liquated than other. Even if we require money for some emergency we will able to take out money from the liquated investment vehicles.
Before we start investing in we need to learn about all the investment options available in the financial market. We need to go through all the investment vehicles such stocks, bonds, gold, real estate, life insurance etch and compare the rate of returns and risks associated with it.
Nowadays there are many online website where we can learn about the all type of investment vehicles and also compare the rate of return and risk associated with it. It will help us in putting our money in the investment vehicle according our financial condition and risk taking appetite.
This will also help in not falling in the traps which are created by the middlemen who gain commission by selling investment products like life insurance. When we have enough knowledge about it we can select and buy our own. This is an important step of investment planning.
After determining the risk return portfolio the investor can develop our asset allocation strategy in investment planning. The investor can select from the various asset classes available in the financial market and allocate assets in such a way that it achieves optimum diversification while targeting the expected returns.
The investor can assign percentage to various asset classes such as stocks, gold, real estate, bonds etc based on the range of the volatility of their portfolio. The asset allocation strategy depends on the investor’s current financial situation and goals.
The most important step in investment planning is implementing the portfolio plan. After we implement our portfolio plan the management process begins. It is necessarily to monitor the investment performance regularly, mostly quarterly and review the portfolio plan annually. The investor’s goals and situations should be reviewed once a year to determine whether there are any significant changes.
The main purpose of reviewing the portfolio is to determine whether the investment is aligned with the investor’s goals. This may be considered as a last step in investment planning.
While doing investment planning, one should control their emotions and focus on their goals, costs and how much and how often we save. We should try to ignore the little dips in the market and have a long term perspective. We should not get worried about negative returns as it will turned back to positive returns in long run. So we should have control on our emotions and stick with our investment plan.
As discussed above, a proper investment planning can help us in making smart investment. If we do not have time to do our own investment planning, we can take plan of financial planner. They will help us in making our investment portfolio according to our risk taking appetite and current financial condition.
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