Investment Planning

When you are using your money for investments, it is important to have a well structured plan for how you will invest and what you intent to achieve. Many people don’t have any sort of long term plan for their investments, and subsequently don’t achieve as much as they could or as much as they wanted..

One of the first points you should consider in your plan is the reason you are investing. Are you investing to provide for retirement, or to be rich? Maybe you are investing to provide cash for university education of you children? The reason you are investing will have a deciding effect on the way you should structure your investments.

If you are investing to be rich, you probably be prepared to hold your investments in a small number of high risk investment products. Since you are investing for the sole reason of becoming richer, and have no particular needs for the capital, you should be able to afford some loses for the potential gains of the higher risk investments.

On the other hand, if you are investing for retirement, depending on the time until you retire, you are likely to want more security in your investments. If it is only a few years until you retire, you would probably want to have the majority of your retirement investments in low risk investment products. If you had any substantial losses now, you would not have time to rebuild the assets. If however, it is thirty years until you retire, you may be willing to put a more substantial proportion of your investment capital into higher risk investments with higher potential gains. The higher risk, but more potentially beneficial investments are more suitable now, since if any flopped, you would have plenty of time to rebuild you capital before you retire.

Investing for a child’s university fees is likely to have a similar structure to investing for retirement. When it is many years away, you may be prepared to invest in slightly higher risk areas, but as the time for needing the capital gets nearer, you would likely want to hold the money in lower risk products.

Once you have decided why exactly you are investing, it is a good plan to think about how risk averse you are? If you had money invested in the stock market, would you always be worrying about losing money? Or would you be happy that while it may drop in value, it should eventually come back up? Would you just be thinking about the higher gains available compared to a high street savings account? However risk averse you might be, it is worth remembering that the stock market has returned an average of 11% from 1918 to 2004. There arent many savings accounts around that could match that!

These decisions should enable you to make decisions about what investment products will be right for you. Whether they be the stock market, property, precious metals, bonds or anything else, it is important to make some decisions about how you will invest in these products. If you are investing in the stock market, are you going to focus on growth or yield? Would an indexed tracker be best, or an actively managed fund? If you are investing in individual shares, would you prefer them to be established blue chips, or smaller companies from the AIM market? You need to put rules in place so that decisions aren’t made based on short term emotional feelings – they should be based on well structured rules to ensure mistakes are not made.

You also need to decide how much money you are going to put into your investments. A certain amount each month? You also need to make decisions about whether you will take capital out of your investments? Are there any events in the future that might require a large amount of money? Have you set aside an emergency fund for any unexpected expenses? It is better to have cash available to take care of unplanned expenses, rather than having to extract money from the stock market unexpectedly, or even worse having to sell a buy to let property to provide emergency cash.

Now that you have made some decisions about you investment future, it is important to write them down, so that they are not forgotten with time. Once you have spent time considering these points, you should be in a much better position to make good decisions about where your hard earned money is best invested.