Establishing a savings account and buying a few random shares of stocks is all it takes to create a viable investment plan.It's important to understand where you are and what you want to accomplish in order to structure a plan that is right.You will choose the best investment options to reach those goals.It is never too late to create and implement a personal investment plan and begin creating a nest egg for the future.
Step 1: You can choose an investment option that is appropriate for you.
Your age will affect your investment strategy.The more risk you can take, the younger you are.You have more time to recover from a market downturn or loss of value in an investment.You can allocate more of your portfolio to more aggressive investments if you're in your 20's.If you're nearing retirement, allocate more of your portfolio to less aggressive investments.
Step 2: Understand your current financial situation.
You should be aware of how much disposable income you have.After you have set aside an emergency fund equivalent to three to six months' worth of expenses, take a look at your budget and determine how much money is left over for investments.
Step 3: Your risk profile can be developed.
How much risk you are willing to take is determined by your risk profile.You might not want to take a lot of risks if you're young.You will pick your investments based on your risk profile.Bank accounts and stocks are less volatile than bonds.There are always risk trade-off's to be made.You make less when you take less risk.Even though investors are richly rewarded for taking significant risks, they can also face steep losses.
Step 4: Make goals for your investments.
What do you want to do with your money?Do you want to retire early?Are you interested in buying a nice house?Do you want to own a boat?No matter what your goal is, you're going to want a diversified portfolio.The goal is to allow the investment to grow over a long period of time so that you can pay for it.If your goal is particularly aggressive, you should put more money in the investment periodically.You're more likely to achieve your goal if you invest more in it.
Step 5: Establish a plan for your goals.
How soon would you like to reach your financial goals?The type of investments you make will be determined by that.If you're interested in getting a great return on your investment quickly, and you are prepared to take the risk that you could also see a big loss, then you should look for more aggressive investments that have the potential for significant return.These include land that might appreciate in value quickly.If you want to build wealth slowly, you'll want investments that generate a slower return on investment over time.
Step 6: Determine the amount of liquid you want.
Liquid assets can be easily converted to cash.If you need the money in an emergency, you should have quick access to it.In a matter of days, stocks and mutual funds can be converted into cash.Real estate isn't very liquid.It can take weeks or months to convert a property to cash.
Step 7: Decide on how you want to bediversified.
You don't want to put all your eggs in the same basket.You might want to put 30% of your investment money into stocks, another 30% into bonds, and the remaining 40% into a savings account every month.If you want your percentages and investment options to be in line with your financial goals, adjust them.
Step 8: Make sure that your plan is in line with your risk profile
If the stock market crashes, you're going to lose a lot of money.It might be a risk that you're willing to take, but make sure that's the case.
Step 9: You need a financial adviser.
If you're unsure about how to set up a plan in line with your goals and risk profile, talk to a qualified financial adviser.
Step 10: Do you know your options?
You can use different accounts for an investment plan.Take some of the basics and figure out what works for you.Three to six months worth of living expenses can be set up in a short-term emergency savings account.If something unexpected happens, it's important to have this established to protect you.In a hurry, this money should be easy to access.Consider your options for long-term savings.You should set up an IRA or 401(k) if you want to save for retirement.If your employer offers a 401(k) plan, they will match your contribution.If you want to start an education fund, you should think about a college savings plan.Earnings from these accounts are not subject to federal income tax if they are used to pay for qualified education expenses.
Step 11: You should monitor your investments from time to time.
Check to see if they are meeting your goals.Do you need to make changes to your investments?
Step 12: Determine if you need to alter your risk profile.
You will want to take less risk as you get older.Be sure to adjust your investments.If you have money in risky investments, it's a good idea to sell them and move the money to more stable investments as you get older.If your finances tolerate the volatility of your portfolio very well, you might want to take on more risk so that you can reach your goals sooner.
Step 13: If you aren't contributing enough to reach your financial goals, you should.
It's possible that you aren't putting enough money into your investments to make your goals.You might find that you're way ahead of your goals and you are putting too much money into your investments on a regular basis.In either case, adjust your contributions.