Three Steps to Make An Investment Plan

If you invest you need an investment plan. Your chances of reaching your financial goals soar if your investments are based on sound principles and a written plan. Your chances for failure are increased exponentially with every investment planning step you fail to complete.

The financial world changes rapidly. Markets go up, they go down. Economies change pace and business cycles fluctuate. Politics, monetary policy, and world events knock your finances off course at a rapid pace.

A pilot has a plan before taking off. They run through a pre-flight checklist, make sure they know where they’re going, what to expect from the weather, and what time they need to leave to reach their destination.

Can you imagine if your pilot didn’t have a plan? What is your backup if the weather pushes you off course? What if you have a mechanical issue and need to land somewhere else? Every pilot knows ahead of time how to deal with challenges.

Investing can be complicated, confusing, and even scary. But a well structured investment plan can take the fear out of investing and keep you on track to reach your goals.

Just how do you create an investment plan? Here’s a few short steps to get you well on your way to investing success! These are just a start however and there is much to be learned over time. I recommend reading “Simple Wealth, Inevitable Wealth” by Nick Murray and “The Only Guide To A Winning Investment Strategy You’ll Ever Need” by Larry Swedroe.

    1. Define Your Goals. You need to know where your going to figuring out how to get there. What are you investing for? Retirement? The kids college? A large purchase? Once you define your goals you can calculate how much it will take to achieve them. Vanguard.com has some excellent investment calculators.
    1. Create Your Investment Policy: An Investment Policy Statement (IPS) is a document which defines the parameters for which you’ll invest. It should be in writing and it’s a very important part of your investment plan management. It helps you avoid ad hoc revisions to an otherwise well thought out investment strategy and provides a framework for making wise investing decisions in the future. Your Investment Policy Statement should detail the types of investments you’ll own, how you’ll select the managers for your investments (which mutual funds or ETF’s may be purchase), how you’ll replace those investments when necessary, what percentages of which asset classes will be purchased, when you’ll need to draw income and how much, how you’ll manage and monitor your investments, when you’ll re-balance your portfolio.
  1. Manage, Monitor and Maintain: Finally it’s not enough just to invest your money and forget about it! Investing takes time and you should schedule a portfolio investment review at least annually if not semi-annually.

Each investment review should track your current investment assets against a benchmark of where you should be in order to meet your goals. It should also prompt a fresh round of due diligence and an asset allocation check on your investments. Mutual funds or ETF’s which were once great may have fallen out of favor, and because the world changes so rapidly it’s a certainty that your asset allocation will have changed which may require adjusting.

The important thing to remember is that if your investment plan was created properly up front, you should continue to have faith and confidence in it – yet the process will need to be monitored and refined. Make changes and adjustments over time as your financial situation changes, but never make emotional random changes in response to market fluctuations.

How To Invest In The Stock Market With Little Money

Many people think that you need a lot of money to start investing in the stock market. On the contrary, you can get started investing for as little as $25. Thanks to the internet, stock investing is accessible to individuals of all walks of life. All you really need to get started is an internet connection and a bank account.

One thing that you must understand when you are just getting started investing is that this is not a get rich quick scheme. You should not expect to make $1000 from an initial investment of $25 in a week. You need to recognize that investing in the stock market is a long term process. Of course, there are experienced stock traders out there that make lots of money day trading, but if you are new to this type of investment, then you should take your time and learn.

If you do not know anything about stock market investing, then you should really think about investing time and a few bucks to learn. The money that you spend now to get familiar with stock investing will pay off in the long run. One of the reasons why people lose money investing in stock is because they do not understand the basics. Stock market investing is one of the riskiest investment vehicles out there. Consequently, if you are clueless about how the stock market works, then your risk exposure is magnified.

So here is what you need to do to get started investing with little money:

    1. Find a stock broker that does not require a large minimum investment to open an account. You are looking for a broker that requires a minimum of $1000 or less to open an account. Some of the online brokers that fit this criteria are E-trade, Sharebuilder, and Firstrade. You also want to look at how much the broker charges you per trade or transaction. If they are charging over $10 per transaction, then it may not be worth it to open an account with them.
    1. Once you have found a broker that you would like to use, then you need to open the account. Be prepared to have to verify your identity and bank account information. Opening an account is simple but it can be tedious. You may also be required to fund your account before it is opened.
    1. Once you have opened your brokerage account, then you need to familiarize yourself with the account. Most online brokerages have a suite of tools that you can use for tracking your trades or researching your potential investments.
    1. Before you start actually investing in stocks, you need to make sure you understand the basics of stock market investing. There are several resources available to you offline and online. Some of the resources are paid and some of the resources are free. You can even subscribe to some free online investing newsletters to get tips on investing.
  1. Once you have an understanding of how the stock market works, then you should be able to make educated investment decisions. Of course, even with the best education, you will still have some bad investments. Nevertheless, with some type of investment knowledge, you will have a better chance of making good investment decisions.