Investment planning is one of the core area that falls under the comprehensive financial planning gamut. Investment planning helps you to generate income and/or capital gains, enhance your future wealth, strengthen your investment portfolio and Save on taxes. It helps one decide how best to put your money-your capital-to work to facilitate your financial goal achievement.
Almost everyone has made some regretful investment sometime in life – investing in something at a high price or selling off assets at low price to realise a goal. One of the main reasons people get caught in the cycle of investment regret is because investment is not planned. A plan enables you to put your money to work by investing rather than speculating and not taking unnecessary risk. A plan lets you take risks that you can afford, and where you can be rewarded for doing so.
The investment world is unique and has its own language, resources, markets, and so forth. Once you’ve decided to become an investor, you should get a feel of the financial market by consulting a professional financial advisor and or doing some online research.
One of the most important things as an investor is to get an early start on investing, Start Now !! Though investing at a young age isn’t always easy, but the benefits are numerous and can’t be overlooked. Due to the power of the time value of money and compounding returns your investments increase exponentially in value.
Investment planning is a six step process
The process involves listening to the investors’ concerns , goals , desires and dreams followed by analysing the information and based on the outcome planning of an effective investment strategy according to an Investor’s risk appetite and financial goals, after taking into account the returns duly adjusted for taxation & inflation for a particular time horizon and building a portfolio after identifying the most appropriate portfolio mix of investment options, including shares, bonds, mutual funds, bank deposits, real estate and them monitoring to ensure that the client is on track.
1. Setting investment goals: The first step is to understand your existing financial condition and time horizon w.r.t your goals. Your life cycle stage will determine which investment strategy or strategies you should implement. For example, you may be saving for your 2-year-old child’s college education or your own retirement in 30 years.
2. Understanding your Risk profile: No investment plan is likely to be successful if it doesn’t fit your temperament and your individual financial situation. Understanding risk is a key part of the investment planning process and an investor needs to fully comprehend his risk taking capabilities and its potential ramifications.
3. Designing an investment portfolio: Portfolio is designed as per the investor profile and the process of determining how much of your assets to put into each of various categories of investments is known as asset allocation. No one asset allocation strategy is appropriate for everyone. For long-term investors who want high growth an aggressive plan that focuses primarily on potential growth-might be established. By comparison, for investors who put a higher priority on current income and stability than growth, a more conservative plan might be established. For the do-it-yourself investor you need to understand the financial markets or else, you can seek the advice of a financial advisor whom you trust.
4. Selecting specific investments: Based on your portfolio designing now you need to actually begin investing for which you have to set up your investment account, select specific investments, and begin building your portfolio in a way that’s consistent with your goals and selected strategies.
5. Managing and monitoring the portfolio: As the circumstances or the investment landscape change, your portfolio needs monitoring, ideally semi-annually, to make sure it’s on track.
6 Rebalancing of the portfolio: Rebalancing means fine-tuning the investments in various categories to ensure that required asset allocation is achieved. This will come to light during periodic reviews of the portfolio.
One should remember all investments carry some risks and you may see short-term losses in value, but remember, you don’t actually lose or gain anything until you sell the investment. While you should generally stay invested for the planned term, it’s a good idea to review things at least once a year – either by yourself or with help from your financial adviser.