It is an important part of any financial planning process. It entails the use of the earnings of an individual to buy assets that would give him or her future benefits in the form of dividends, capital appreciation, interest earnings and or capital gains. These are usually undertaken so that people can earn money sufficient for large purchases or have enough to spend for life events such as buying a car, a new house or marriage. It could also include objectives such as starting a business, saving for retirement and paying for the education expenses of themselves or their children.
What constitutes investment planning?
Achieving these goals requires projecting what they will cost, and when one would need to withdraw funds. A major risk to the individual in achieving their accumulation goal is the rate of price increases over time, or inflation. Using net present value calculators, the financial planner will suggest a combination of asset earmarking and regular savings to be invested in a variety of investments. In order to overcome the rate of inflation, the investment portfolio has to get a higher rate of return, which typically will subject the portfolio to a number of risks. Managing these portfolio risks is most often accomplished using asset allocation, which seeks to diversify investment risk and opportunity. This asset allocation will prescribe a percentage allocation to be invested in stocks, bonds, cash and alternative investments. The allocation should also take into consideration the personal risk profile of every investor, since risk attitudes vary from person to person.
The four major points of any successful investment plan are:
Starting early in formulating and implementing one’s invest...
... middle of paper ...
...see whether investment is required and if so, which investment option should he or she opt for
Implement the plan – The individual needs to build an investment portfolio which would fulfil his or her objectives and be within their risk tolerance limits
Follow up – The individual would need to constantly keep track of his portfolio and keep on matching them with his goals, which could keep on changing with time
These steps would enable an investor to make the right investment decisions and get the most out of those decisions
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