Investment Planning: Creating Your Investment Plan | Chapter 4


In the previous chapters of our investing series, we went over why investing is important, investment terms that you need to know, the benefits of investing, and more. But in chapter 4, we’ll be going over what goes into investment planning. The purpose of this chapter is to provide you with a basic understanding of how to create an investment plan and why having a plan is so important.

So, what is an investment plan, you ask? An investment plan is part of your larger financial strategy to achieve your long-term life goals–like retirement or a big purchase–using investments. If you’re planning to invest at any point in life, you may want to consider creating an investment plan so that you can figure out how you’re going to achieve these goals. 

Investment planning is crucial so that you can determine what your goals are and what you should do with your investments. Without an investment plan, there’s no way you would be able to figure out how to achieve those goals in a way that works for you. An investment plan should outline your main purposes for investing, how much you can realistically afford to invest, what your timeline is, and what kind of investments you should make.

To learn more about how to create an investment plan that helps you stay on track with your financial future, continue reading this chapter, or use the links below to skip to a section of your choice.

  1. What Are Your Goals and Main Purposes for Investing?

First and foremost, you need to figure out what your investing goals are. Do you want to invest as a way to build your wealth? Or do you want to invest in yourself and start planning for retirement by investing in retirement funds?

Everyone has different goals when it comes to investing. Some people want to invest as a way to save money and some people invest as a way to accomplish personal goals. But regardless of what your goals are, it’s crucial to figure them out prior to investing. How can you know what type of investments to make if you don’t even know why you’re investing?

It’s also important to figure out if these are short-term or long-term goals, as that will affect the type of assets you invest in. Figuring out your goals will help you determine your risk tolerance and if you’re willing to take on more risk to accomplish your goals . For example, if you’re just starting off with investing and want to err on the side of caution, low-risk investments are typically a much safer option because you’re less likely to lose your money. Low-risk investments can also be better if you want to generate revenue more quickly to accomplish a specific short-term goal, like saving for a wedding or buying a house. 

For many people, investing is an essential component of their overall financial plan and you may want to consider including it too. If one of your goals is to save for retirement, you need to figure out which retirement plans you should invest in so that you can start saving money as soon as possible.

  1. How Much Can You Afford to Invest?

Once you’ve figured out why you’re investing, you then need to determine how much you can realistically afford to invest. While investing can benefit you greatly in the long run, investing more than you can afford right now generally does more harm than good.

Some experts recommend putting 10% to 20% of your net income aside for investing in stocks, bonds, and other assets. However, this amount differs for every person and their unique financial situation. It’s generally better to invest small in the beginning and work your way up. As you get older and become more confident in your investing abilities, you may want to start investing more money and even consider making more risky investment moves, like short selling stocks.

For example, if you invest in a 401(k), you may aim to increase your 401(k) contributions as you get older and make more money. By the time you’re 30, it may be a good idea to have a year’s salary saved up in your plan. So if you make $60,000 a year, you might have $60,000 in your 401(k) at age 30. By the time you’re 40, you might aim to have 3 years’ salary in your plan, and by the time you’re 50, you might have 5 years’ salary saved.

But to figure out how much you can afford to invest right now, you need to take a look at your current financial situation. If you’re barely making enough to afford rent and your living expenses, investing might not be one of your top priorities. You may want to wait until you’re a bit more financially secure before you go ahead and put a large portion of your income towards your investments. Instead, you may consider focusing on managing your money first, and think about investing later.

However, it may be beneficial to start investing as soon as you feel like you have enough money to set aside for it. Investing can be a great way to generate passive income, so you can have the potential to create multiple streams of income without actually having to do any additional work. 

  1. What Is Your Ideal Timeline?

So you’ve deciphered your goals for investing and how much you can realistically afford to invest. The next step is to figure out your ideal timeline for investing. How soon do you want to make money from your investments? Are you investing for the long-term or the short-term? These are all important questions to ask yourself when creating an investment plan.

For the most part, there are two ways you can go about investing: Short-term investing and long-term investing. It’s important to know the traits of these two so you can determine which is a better option for you and your goals.

  • Short-Term Investing:
    • 1 to a few years
    • Need to meet a goal quickly
    • Leverages liquidity
  • Long-Term Investing:
    • Several years or longer
    • Have time to meet goals
    • Takes advantage of compound interest

Some examples of short-term investments are high-yield savings accounts, short-term corporate bond funds, money market accounts, and cash management accounts. These are all potential options to consider investing in if you want to have money by a certain time. 

On the other hand, some examples of long-term investments are stocks, bonds, and mutual funds. These are often sought after by those who are working with a longer time frame and want the opportunity to generate more money. Knowing what your financial goals are will also help you determine whether short-term investing or long-term investing is better for you.

  1. What Types of Investments Should You Make?

The last factor you need to figure out when it comes to investment planning is the type of investments that you should make. There are many ways you can invest, so it’s imperative to do your research and weigh the pros and cons of each type before making any decision.

Choosing the wrong type of investment can seriously hinder your financial and personal goals and set you back with your finances. With investing, you generally don’t want to make any hasty decisions. Spend some time figuring out which type of investment is best for you and your financial situation. We’ll be discussing more about the different types of investments that you can make in the next chapter in the series.

Next Steps Toward Putting It All Together 

Once you’ve figured out the answer to all of the above questions, then comes the important part of creating your investment plan: putting it all together. When in doubt, you can always get help from a financial professional to guide you through your investing journey and answer any questions you may have. You can also use investing apps to help you get started. 

You should aim to review your investment plan regularly and make changes as necessary. As we grow and change, so do our goals, and your investment plan should reflect that. Maybe you got a new job and can invest more money now. Or, maybe you had a kid and now need to start saving for their education. Whatever your situation may be, make sure to go back and review your plan often.

In Conclusion

Creating an investment plan is important for many reasons. Having a detailed plan that outlines your goals, timelines, and investing strategy can give you a better chance of generating higher returns. As a typical rule of thumb, when it comes to investing, the last thing you want to do is go into it blindly. If you’re more prepared, you’ll be in a better position to make smarter choices. So before you go ahead and start putting aside money for your investments, focus on creating an investment plan first.

And now that you’re familiar with why it’s important to have an investment plan and what goes into creating one for yourself, you can move onto the next chapter in the series, which covers the different types of investments.

This is for informational purposes only and should not be construed as legal, investment, credit repair, debt management, or tax advice.  You should seek the assistance of a professional for tax and investment advice.

Third-party links are provided as a convenience and for informational purposes only. Intuit accepts no responsibility for the accuracy, legality, or content on these sites.

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    Chapter 05: Types of Investments

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    Chapter 03: Benefits of Investing

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