How Important Is Investment Planning When It Comes to Earning Money?3 min read
Investment planning is a long-term planning tool for financial success. In short, it is a way of working with your money to achieve a long-term goal. Investment planning can be done at any stage of your life. An early investment planning strategy can help you create a foundation upon which you can build your financial future. In this article we will look at what the basics of investment planning are.
An investment planning strategy is a specific investment vehicle available to most individual investors where they can invest small sums of money periodically rather than lump sums, enabling them to diversify their financial portfolio over time. The usual frequency of investment for this vehicle is once a year, quarterly or monthly. Most people who do not have a lot of money to invest or who cannot get other places to keep their money often turn to certificates of deposit (CD) accounts, savings accounts and money market funds. The preferred choice is certificates of deposits as they offer higher interest income as well as a wide range of choices in terms of investments and management style.
When you invest the money that you plan to use in your investment planning, you will set a series of financial goals that you want to meet. These goals could be to buy a house, pay off some college debts, or build a business. Setting financial goals is important, as it will guide you in how and where to put your money. A financial goal should be written down and clearly defined so you can set and achieve measurable, quantifiable goals that can be tracked over time.
As part of your investment planning you will need to identify what your portfolio is made up of. This may include stocks, bonds, mutual funds or real estate properties. You will then want to figure out the probability of you making your money and whether it is likely to exceed your other investments. For instance, if you have a portfolio that consists of ten thousand dollars worth of stocks and bonds and you are hoping to make eight thousand dollars per year, you would want to calculate the following; per year, how likely is it that you will earn eight thousand dollars; how likely is it that your portfolio will earn twenty thousand dollars in one year; and calculate the percentage of your portfolio value that you are expecting to make in one year.
One other important step when it comes to setting financial goals for your investment planning is deciding how much of your portfolio value you are planning to spend on each of the short term goals. Many people tend to invest money unnecessarily in the hopes that it will rise enough in value in one year to justify more investment. However, keeping money tied up in bad investments will actually do the opposite. It is important to set a reasonable amount that you plan to spend on short-term goals such as buying a new home.
Once you have determined what portion of your portfolio you are going to spend on each of your short term goals, it is important to choose investment vehicles that will help you reach your long term goals. For example, if you plan on investing in stock funds you will need to pick out individual stocks and bonds that you think have the potential to increase in value over time. If you are unsure about which of these investment vehicles are the right ones for you, it may be a good idea to work with a qualified financial advisor who can help you find out. Finally, when it comes to your long term goals, there are several different ways that you can invest in order to reach them.