Investment Plan

Creating Your Investment Strategy

What are your objectives?

Investment objectives help you find investments suitable for your goals. This is key to your investment plan. The following is a list of the most common investment objectives:

Growth – This is for long-term goals. Short-term trends don’t worry investors with this objective and stock market crashes are investment discounts, not huge losses. This will grow your money over time.

Income – To create an extra income stream. This will maximize your income.

Capital Preservation – To retain your money and not lose it. This will save your money, like a savings account.

Tax Management – To limit taxes on the money gained from investments.

Speculation – Investing to receive short term gains. The likelihood of losing the money you invest is extremely high. This is the riskiest investment objective and usually represents a small portion of an investor’s portfolio, if any.

investment plan

What are your goals?

If you don’t have a goal yet, make one. Creating a goal will make your investment plan more focused. The following is a list of the bare minimum to include in a goal:

Financial Vision

Title – Give your goal a name. What is it that you are saving for?

Final Amount of Money Saved – How much money will you have at your goal’s end date?

Final Date – How many years away will it take for you to get that amount of money?

Monthly Investing Amount – How much money will you put towards your goal each month? Feel free to change the time period.

Line up your Goals with your Objectives

Figure out what investment objectives is good for your financial goals. Below we list off a few goals linked to different investment objectives:

Retirement Plan or Long-term Savings = Growth Objective

If retirement is part of your investment plan, then a growth objective is what you need. This objective is also good for growing your money for any big purchase more than 10 years away.

Retired = Income Objective

This objective applies more to people who are retired but can also be applied to people who have a substantial amount of money saved up. This will give the person an extra stream of income to live off.

Retired = Capital Preservation and Tax Management Objective

People who are retired and have a lot of money saved up for retirement can put their money in investments that will limit their taxes and risk. This means that the likelihood of losing money on the investment is less than one percent.

Short-term Savings = Capital Preservation Objective

This helps you limit risk. Your money will act more like a high return savings account, than the typical investment.

Pondering investment strategy

Objectives can be different for different goals and the persons circumstances. Remember that you can even combine objectives if it is suitable for your goal.

Linking Objectives to Investments

To finalize the initial planning of your investments you need to line up your goals and objectives with investments that you will buy. Below we listed how you can achieve your goals with different investments:

Growth – Acquire an S&P 500 Index Fund or other Morningstar five star rated mutual funds, diversifying your money in several Blue-chip Companies (Investments in multi-billion dollar reliable growing companies) in multiple industries. Growth objective investments will increase in value over time.

Income – Buy stocks that pay dividends or bonds that pay interest. These investments will pay money to their owners.

Capital Preservation – Purchase highly rated bonds, that have very little risk. These investments are highly unlikely to decrease in value.

Tax Management – Invest in government securities such as municipal or treasury bonds. These investments will decrease or eliminate taxes on their gains.

Speculation – Buying penny stocks (Stocks that have a price lower than $10 per share), stocks that have a record of performing in the opposite direction than the market (bearish), day trading (buying and selling investments within the same day), etc. The list of speculation grade investments is huge and can be looked at as gambling.

Analyzing investments

Investment Choices

Stock- Ownership in a company. Stock value is gained through the company’s expected growth. Some company’s may pay their stockholders also through dividends.

Stock Indexes- A composition of stocks. The stocks the index holds depends on the index’s purpose. Learn more about the S&P 500 Index.

Mutual Fund- An investor would put a minimum deposit into the fund, then would own a bundle of securities. The Fund invests in multiple securities stocks/bonds/commodities/real estate depending on the mutual fund’s purpose.

ETF- Exchange Traded Fund. Similar to a mutual fund but is traded like a stock and is less government regulated.

Bond- A loan from a company or government entity. The entity is expected to pay interest and payback the original amount given at the end of the term. High bond credit ratings include the letter “A” in it and no other letters. You want a high bond credit rating so that the investment is safe and less risky. To learn more about bond ratings here’s a Wikipedia link: Click Here

Real Estate- Owning property (land/buildings) for profit.

Commodity- Gold, Oil, any raw material that can be invested in.

Write Your Plan Out

Make sure to write out your investment plan. Here are some examples:

Retire in 2060 (42 Years from now) with $2,000,000. I will have a growth objective. I will invest $258 per month into an S&P 500 index mutual fund, which has an average 10% return annually.

Retired for the next 20 years and need and income of $60,000 per year. I have $2,000,000 saved up, so I will have capital management as my primary objective, income as my secondary objective, and tax management as my third. I will invest in a high rated municipal bond mutual fund with a 3% annual return. This will give me $5,000 per month to live off.

Use our financial goal spreadsheet to calculate your financial goals

 Investment Plan - Where to Start
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Investment Plan - Where to Start
Create an investment plan with The Budget Guide. The Budget Guide will walk you through how you can create an investment plan to achieve your financial goals and declare financial independence.
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The Budget Guide
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