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. 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.

Leave a Reply

Your email address will not be published. Required fields are marked *