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.

Making An Investment

‘Save for a rainy day’ is how the adage goes and our elders too propagated the same so that we have an easy life and do not get stressed for want of money during trying circumstances. In order to make oneself well equipped to deal with the unexpected trials and tribulations that life brings in it is important to follow a good investment plan. It is highly prudent to come up with an ideal investment plan so that you have pragmatic goals that are achievable. Before actually getting into serious investment, it is essential that the investor has a sound financial foundation in place. There should be some kind of emergency funds for that rainy day and the house should be adequately insured.

Making an investment greatly depends on the amount of risk the investor is ready to take. Identifying the investment goal is also crucial because there are people investing actively for different reasons… for asset accumulation, for children’s education or for a major investment like a home. Being aware of the investment goal helps a lot because with this awareness you can decide upon the time horizon of your investment. Then comes the asset allocation.

Another crucial step in the investment plan is to decide on how much percentage of the savings are you going to invest in equities and how much in fixed income instruments like bonds and bond funds. When you are decided on this the next step is to put your investment plan into practice. This execution of the investment plan is probably the most difficult and challenging step for the investor’s investment journey. But once the hurdle is passed, maintenance should not be a problem. However, subsequent maintenance of the tempo also is crucial to let the plan get to completion.

There are a few other factors that will help in the investor’s decision making. Identifying the main cause of investing would give him a sense of commitment to stick to the plan. Otherwise the entire effort would be a directionless one. Understanding whether or not the chosen channel meets the requirements is very crucial… if it does, following up with the plan helps. But if it does not, it is always right to nip it in the bud and choose another investment channel that would meet the investor’s needs.

Identifying the time frame of the investment plan would give you clarity on the finances you may have at your disposal. Understanding your investment channel will greatly help in tapping the advantages to the fullest. For instance, if you are a novice in equities and are pinning your investments there, the amount of risk you are taking is very high. It is very important that you understand the stream of your investment well rather than follow the crowd.

Choice Financial Solutions is an independent financial adviser that is committed to offering its clients pertinent advice as far as investment and investment plans are concerned. The online firm offers services in the areas of investments, mortgages, pensions and protection. Get the expert’s opinions while investing in investment bonds or unit trusts or guaranteed income bonds or portfolio planning. They tailor their services so as to suit the needs of their customers.

How Long-Term Investments Can Benefit You

In uncertain times, with markets usually volatile, it is tempting to make long-term investments and hope to ride out any economic storms.

There are advantages and disadvantages to all types of investment terms so what are the specific benefits of Long-Term investments.

The most obvious benefit of long-term investing is compounding. This is the effect of dividends or interest being reinvested to achieve sustained Capital Growth.

If investing on a regular basis, this equates to cost averaging. This means that you may purchase shares or units monthly for example and the cost of the units will differ short-term but as long as the overall investment increases long-term then any troughs or peaks are smoothed.

What about a lump sum long-term investment?

In this instance you are hoping that the investment increases over the long run to achieve capital growth or any income derived will outweigh capital depreciation. However, what if the investment actually grew over the long term, GUARANTEED.

If you think about it how many investments can you think of that physically grow and offers huge demand and markets.

For a long-term and stable investment, you couldn’t do much better than an investment in Timber. When other investments have been heading down hill, timber remains a solid investment opportunity for the savvy investor. If you look at the return on investment figures for the last forty years, timber comes out as a top performer when measured against many other asset classes.

So how does a forestry investment work?

Usually, an investor will commit a lump sum. This will purchase saplings, fund the land lease, pay commissions and forester/management fees. The saplings are planted and they start to grow. Initially, the saplings are worthless but as time passes the young trees start to gain in value. Weaker trees will be harvested for paper pulp to allow the stronger trees to become more established. Usually, this first harvest will happen within the first five years. The income the harvested trees return will be passed to the investor as an income payment. The remaining trees continue to grow and all the time they increase in value. Further harvests will take place until the investor is left with high value, strong mature trees.

Please allow me to take you through a scenario. For example, an investor initially purchased 600 saplings. After year 4, 300 trees are harvested (returning £5000 in income). After year 8 a further 105 trees are harvested (returning £15,000 in income). After year 10 a further 68 trees are harvested (returning £20,000 in income). To this point £40,000 had been returned in income.

For argument sake, lets me make the assumption that a mature Melina tree (Gmelina Arborea) is currently worth £250 each and over a 12 year cycle the price increased by 5% per annum, a mature Melina tree would be worth £453 approximately.

Therefore, 127 trees would remain after 12 years and harvested. Returns would be 127 X £453 = £57,531. On this basis the overall return would be £97,531 for an initial investment of… £18,000.

Now what if I was to inform you Gmelina has risen in value 2005-11 on average 17.83% per annum.

As a long-term investment option, various bodies predict strong growth for the timber industry and for the foreseeable future. In the UK alone we use 50% more natural resources per person than what nature can replenish. When you weigh-up the long-term nature of timber an investment today is an interesting option to help secure your financial future and maybe even that of your heirs.

Alternatively, if you are looking for UK Pension investment, forestry may just provide the returns you need to start in building your financial security for the later years in your life.

Whatever way you look at it, investment in timber is a solid financial choice.

Begin Investing Right and Effective

In a volatile and unstable global economy, it is very important to build your nest egg. Saving up for the rainy days entails either keeping your money in a secured location within your vault or just a cash box in your home, or depositing it in the bank in a savings account. Depositing in the bank gains a favourable nod between those two savings options.

More often than not those bank savings sit idly, earning a modest interest, less any appertaining withholding tax charged against your interest income. For those who does not need their savings immediately, it is more desirable to take your savings to a higher level of which is investing.

Investing one’s money basically has its own corresponding risks and rewards. The riskier the investments are, the higher the monetary rewards. Before making investment decisions, here are some questions that you should be asking yourself first:

What is my purpose in investing?

The question why in investing decisions is as critical and as important as any other questions. You must ask yourself your reasons for your investment decisions; whether you consider it as a profitable venture with which you can gain income that you will use now, or if you just have excess money in the bank that you wish to earn more. The answer to your investment will determine your willingness to take investment risks.

How much risk am I willing to take?

Now that you know your purpose in investing, you can now decide how much risk you are willing to take. Your risk appetite or your willingness to accept risk will determine the profitability of your investments. The more you need the income, the more aggressive you will become in investing. The riskiest type of investment is stock trading. The value of your investment fluctuates on a daily, even on trading-hours basis. You must practice sound judgement in procuring the types of stocks that you will purchase because this can empty or build your nest egg in one day.

Less risky type of investments includes mutual funds. This is a combination of stocks and bonds being handled by a fund manager. This combines the riskiness of the stocks, and the safety of fixed-income pay-out of bonds. Money market placements also have significantly lower investment risks. Literally risk-free are bonds, notes payable, term deposits, and savings deposits. They guarantee the pay-out of interest income, but the investment returns on this type is significantly lower than in stock trading, mutual funds and money market placements.

How much am I going to invest?

It is very important to assess how much of your savings is really a savings that is not intended for immediate use. Determination of the amount for investment will depend on your desired amount of returns, in combination with your risk appetite. If you want a high-yield on your investments, you need to invest a significant amount on high-risk investment type like stocks. There were cases of investors with a significant bulk of cash; who invested the same in a low-yield, secured investment like term deposits, and practically lived in style using the annuities without touching the principal amount of their investments.

What Is a True Investment?

As the first step on the path of learning about investments, one must answer the fundamental question: What is an investment?

Surprisingly, a lot of people are actually confusing investment with speculation or even gambling.

The Merriam-Webster dictionary defines an “investment” as follows:

“the outlay of money usually for income or profit”

This definition however lacks one crucial ingredient. An investment should have a reasonable chance of returning both the principal (i.e. money originally invested) and the profit. If an opportunity does not provide a reasonable chance of returning both the principal and the profit, then it is not an investment. This is an extremely important point to understand and in my mind it represents the core of what a true investment is.

When one makes an investment, one forgoes immediate consumption in exchange for future consumption. This delay in consumption must be compensated by profit. For example, let’s say you have $1,000 right now. You could spend this money today and get the benefit of goods and/or services that this money can buy. Alternatively, you could invest it, thus delaying your ability to enjoy your money into some future point in time. If in the future, all you got back was your original amount then it would not make sense for you to invest it, as you would not be gaining anything. In fact, you would probably be losing money since your $1,000 in the future would be worth less due to inflation (i.e. it would buy less goods/services). Therefore a true investment must not only return your original amount that you have invested, but also profit as a compensation for using your money. Not only that, but to be worthwhile (assuming your principal was after tax) the profit after paying taxes should be higher than inflation over the period during which your money was invested.

You will notice that in my definition of an investment, I referred to a “reasonable chance” of returning both principal and profit. What is a “reasonable chance”? Interestingly enough that depends on an individual investor. Every single investment entails “risk”. Risk is the lack of certainty regarding how much principal and profit you will get back. History has shown us that even the highest rated securities issued by governments are not free of risk. Therefore it is up to each individual person to decide what their comfort level for taking investment risk is. The riskier the investment, the less certainty there is regarding the outcome. If an investor is knowledgeable and has done their due diligence, they would demand a higher profit for riskier investments. Unfortunately in the real markets this is not necessarily the case. There are many investors who own risky investments which do not necessarily pay bigger profits than the available alternatives.

Let’s look at some examples of investments and speculation/gambling according to our definition:

    • Is buying a lottery ticket an “investment”? Absolutely not! Since the chance of winning a lottery is exceedingly small, you cannot have any reasonable expectation of receiving back your original amount plus profit. Hence it is nothing but a gamble.
    • Is buying a stock about which you know nothing about an “investment”? No, since you know nothing about the particular stock, you have no reasonable expectation of receiving back your principal and profit. This would be gambling rather than investing.
  • Is buying a stock below its intrinsic value an “investment”? Yes, provided you have done your due diligence and can reasonably expect the stock price to return to its intrinsic value within some limited time frame, you have a reasonable chance (but not guaranteed) of getting back your invested amount with a profit at the end of the period. This would be considered an investment.

Hopefully this article helps you think about investment opportunities in a different light. You should always be asking yourself the questions:

  • Can I reasonably expect to get back my invested amount with a profit?
  • What is the chance that I will not get back part or all of the invested amount and profit?
  • Am I comfortable with these chances?

If you’ve answered “No” to any of these questions, it is a good indication that this investment opportunity is probably not for you.