5 Surprisingly Simple Questions Guaranteed To Help You Create A Good Investment Plan

By | September 5, 2017

5 Simple Questions To Help You Create A Good Investment Plan

In order to find success in investing, it is important to understand why you are investing. When you have a plan, selecting the right fund choices to achieve your targets becomes easier.

Here are five questions that will help you create a strong investment plan to achieve your goals.

What is the purpose of your investments? 

Unless you have a clear goal in mind, investing is almost meaningless. But, the most important question you need to ask yourself is, ‘Why am I investing?’

Are you investing for capital safety, to earn a regular income, for wealth creation or to save up for your retirement? You must consider drawing up a retirement income plan that will estimate your sources of income in the future and calculate the expenses that you may incur. This way, you will get an idea of the income you may need to enjoy financial security in your golden years.

Once you have an estimate of the income you will need to live comfortably in the foreseeable future, you will know whether to invest money in short-term, mid-term or long-term investment options.

Additional Reading: Retirement Planning For Everyone

How much can you realistically salt away for investments?

Many investment options have a minimum investment amount that investors will have to look for when they choose to invest. You will need to consider this factor before you decide how much you can invest from your income.

You also need to decide whether you to make a lump sum payment or regular monthly contributions towards your investments. Be realistic with your investment targets and watch your money grow gradually. In fact, some Mutual Funds allow you to start investing with as little as Rs. 1,000.

Here’s a tip: If you invest a fixed sum of money on a monthly basis, you can take advantage of the concept of rupee cost averaging. This way, you can reduce the effects of market volatility on your investments.

Let’s say you have a sizable sum of money to invest. That’s wonderful, really, because then there are that many more investment options available to you. You can safely diversify your investments and perhaps divide your investments between equity instruments and debt instruments.

Additional Reading: What To Remember When Choosing The Right Debt Funds

When will you need the money again?

Try and work out a time horizon for your goals before you start investing. If you need to liquidate the investment in a period of one or two years, you may want to explore less risky investment options such as short-term debt funds.

If you are willing to invest and leave the money alone for at least 5 years, you could give Equity Mutual Funds a thought for wealth creation.

Additional Reading: Choosing Between Various Categories Of Equity Mutual Funds

What is your risk tolerance?

Some investments may reap huge returns in a relatively short period of time, but more often than not they come with a high level of risk. These investments are too risky for most people. However, one way to reduce investment risk is to diversify. While you may still experience swings in investment value, you can reduce the risk of a complete loss due to bad timing or other unfortunate circumstances.

Be cautious of buying only high-yield investments. There is no such thing as high returns with low risk. If you aren’t in a financial position to take large risks with your money, then it is better to earn moderate returns and grow your money over a sustained period of time.

Additional Reading: 5 Risks You Should Be Aware Of As An Investor

Where should you invest?

So many first time investors are in a hurry to make investments without first studying their options thoroughly.

What you must actually do, is to make a list of the investment avenues that match your specific goals and time horizon. Be picky about your choices and narrow the options down to a few (three or four, maybe?) Understand the advantages and disadvantages of each investment choice carefully.

Additional Reading: Intelligent Asset Allocation

Once you formulate a complete plan to investing, the key to finding success is to stick to the plan. All that you need to do then is sit back, while your money works hard for you!

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