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How to Create an Investing Plan

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Nest egg savingsOne of the most important things you can do to find future financial success is to include investments in your planning. This can be especially important for retirement investing. Creating an investing plan is a way to help you guide your finances to a successful future. Without a plan, you have no roadmap to follow — and you could easily lose your way.

The creation of an investing plan doesn’t have to be difficult or complex. By examining your goals, and considering your options, it is possible to put together an investing plan that can help you find financial freedom:

1. Determine Your Goals

The first thing you need to do is determine your goals. Why are you investing? What do you hope to accomplish. Some of the common goals for investing include growth, capital preservation, and income. You might even develop different tiers of an overall investing plan to help you reach more than one goal. Think about what you want to be able to do with the money, and make your plan based on what you hope will be the end result.

2. Establish a Time Frame

Next, you need to figure out when you will need the money. If your investing goal has to do with paying for college, or raising the money for a sizable down payment on a house, your time frame might be shorter, and you might want to invest for growth. If you hope to eventually live on the passive earnings from an income portfolio, you might have a time frame of eight to 15 years. For retirement, you are likely to have a time frame of 20 to 30 years. How soon you want to use the money will be an important factor in determining how you will invest.

3. Research Different Investment Choices

Now, you need to research different investment choices. If you are close to retirement, and you have a large amount of capital that you want to invest for income and for capital preservation, you might look into cash, bonds and dividend stocks (preferably dividend aristocrats). For those interested primarily in quick growth, it might be tempting to look at individual stocks, high-yielding foreign bonds, currencies or commodities. Work out an asset allocation that is likely to help you reach your investment and financial goals.

As you research your different options, make sure that you understand investment risk. Realize that the investments that come with the promises of large growth also come with a bigger risk of loss. You need to weigh your risk tolerance against the promise of fabulous riches, and watch out for investment scams.

4. Determine How Much Money You Need

Finally, after you figure out what asset allocation is most likely to help you accomplish your dreams, it’s time to determine how much money you need to invest. There are a number of rules of thumb that you can use to estimate how much you are likely to earn from your investments. You can use the Rule of 72, the 10-5-3 rule, or use the pre-set numbers in any retirement or investment calculator you find online.

Look for ways to come up with the money necessary to invest according to your plan. You may need to re-assess your spending priorities, or look for ways earn more money to invest.

Sticking to Your Investing Plan

Once you have your investment plan in place, it is important to be consistent, and to re-evaluate every six months or every year, to see if you need to re-allocate your assets. Realize that part of your investing plan should be shifting your assets around as you near your goals. If you are close to buying that house you planned for, sell your high growth investments while they are still reasonably high, and put your money someplace safe as you work out the transaction details. As you near retirement, it’s time to change your asset allocation so that you are more focused on safety and income.

(Photo: RambergMediaImages)

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7 Responses to “How to Create an Investing Plan”

  1. Dan says:

    This is great advice! I’ve been investing for only 3 years now, but I’ve found that no matter how good I think my plan is (long term, dividend heavy), it only takes a week of loses before I’m second guessing myself and I want to sell everything. The best way I’ve found for sticking to my investment plan is to write it down. Whenever I’m having a bad week, month, or quarter, I just read my plan again and it helps me get through the rough patch without making the huge mistake of selling when I’m down.

    • Shirley says:

      A yearly spreadsheet listing the monthly gains/losses and a cumulative total helped me with that ‘OMG feeling’ during bad stretches. Seeing the yearly total was not nearly as frightening as looking at the monthly total and it kept me committed to seeing out my plan.

  2. George Burdell says:

    I’m the opposite; when I see losses I want to put more money in. I typically keep 20% in conservative cash/bonds allocation. When I think prices are artificially depressed significantly (i.e. summer 2009) I’ll shift my safe money into equities. This is my version of “timing the market”.

  3. Shirley says:

    “As you near retirement, it’s time to change your asset allocation so that you are more focused on safety and income.”

    So true! When the economy dropped drastically and investors were losing money hand over fist, we were already retired and drawing on a 401k monthly. That portfolio is in a low risk range because we know it definitely has to last to be used as our income. Luckily we lost a very small percentage of it compared to many others.

  4. govenar says:

    “If your investing goal has to do with paying for college, or raising the money for a sizable down payment on a house, your time frame might be shorter, and you might want to invest for growth.” – That sounds like the opposite of the normal advice; i.e., if you need the money soon you’d invest in safer things, not for fast growth. But I guess in some cases it can make sense to invest for quick growth for a short term goal, if you’re ok with not buying a house, etc if the investments go down.

  5. skylog says:

    this is a great post! i think that too many people do not start investing because they simply do not take the time to sit down, determine what they need/want and find a path to the goal. starting is most important part.

    that said, all too often, people go in with a plan or idea and do not keep their plan current. given how life changes, goals are altered and paths are shifted, this is certainly a mistake. sticking to a plan is essential, but keeping a plan current to your shifting needs is just as much so.

  6. Bradley says:

    I always believe that it’s never too late to create and implement a personal investment plan and begin creating a nest egg for the future. The little you can start investing now could reap huge rewards down the line. Every good plan starts with a clear goal. Where do you want to be in the next five years, 10 years or even 30 years? If you know what you want, a solid investment plan will help you get there.


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