Investment plans are one of the most popular ways to generate wealth and have a secure financial background. In the most general sense, the act of investment is to allocated and distribute certain amounts of money in particular schemes and investment products with the hope and expectancy of getting gains and profits in the future. During investment, an investor can bear the risk of loss of capital which he or she has invested. This goes to show that investments are not a risk free endeavor.
The market for investment is always in flux and is constantly changing. Economic statues of the country and also the finance market greatly influence the returns that are to be generated on completion of an investment. if the market conditions are favorable and optimal to yield positive results, then an investment will be able to produce returns that is a profit as the returns generated will be more than that of the initial capital that was invested. Similarly, on the flip side, an ill-timed investment made during unfavorable market conditions can likely cause an investment to yield negative results and cause the returns to be less than that which was initially invested, in such a situation, the investor experiences losses.
Broadly speaking, there are mainly three types of investment options — namely stocks, bonds, and cash equivalents.
Making the optimal investment plan for you
It is important to know why you are investing in the first place. Having a target goal for which investment serves as a leading purpose in vital to form a plan which best suits your needs. Making an investment plan is a tricky task even for those who have been in the investment market for some time. There are certain things and aspects that must be set as the basis for an investment plan before following through with it. Figuring out what the prime objective and subsequently understanding the choices to be made will ultimately help in the preparation and formulation of a beneficial and profitable investment plan. To build an investment plan that works best for you, there are five main questions that must be answered and made clear. By having these answers to the question, the execution of an investment plan will be smooth and will make it that much easier to each your objective.
- What is the purpose of the investment?
Each time an individual opts for an investment, he or she has a definite purpose for it. Different people have different purposes that need to be serving through investment plans. Some aim for growth; others seek income while others want to bring about safety. The first step to formulation the best investment plan for you is ti identify and realize for what objective you are investing. Depending on this first question, the following choices for an investment plan will be categorized to suit the purpose you are striving for.
- What is the time frame for the next financial need?
Having a fixed period to which you can stick and adhere to is the next question that needs to be settled. Depending on the period of time after which you will need the money invested along with the returns, you can make modulate the type of investment. If you are investing to buy a car in the future then it will be a short-term investment and the primary characteristic of the investment plan will be for safety against monetary fallout. On the other hand, if you are investing for retirement purposes, then the objective of the investment plan is income. For retirement purposes, the time span is a long one and the returns generated after a mere one year of investment is all but irrelevant. So depending on the time frame, you can formulate the best investment plan depending on the factors of your goal.
- What is the capital you can safely use for your investment plan?
There are multiple investment options, and many have a minimum capital amount that has to be invested. Before jumping into any investment product or option, careful evaluation of the amount of money you currently own before investment is crucial. Depending on the amount of capital you poses, you can choose whether to make one lump sum deposition or make monthly payments. You are low on funds than having a single investment plan with monthly premium payments is most likely the best course of action. If you find yourself in need of investing a relatively large amount of capital, then you can opt to take up multiple investment options and allocate the money according to the investment schemes you have chosen. In such a case, by choosing multiple investing options, you can minimize the risk factor as if one investment avenue does not yield returns then you will still have other invested options to bank on as a backup.
- Which investment product to choose?
A lot of people make a recurring and amateur mistake of opting for the very first investment product that they come across or are offered to. It is always of great benefit to sort through and consider as many different investment avenues one can find about their goal. Taking the time to analyze the pros and con of each investment product and comparing them with each other will help you create the best-suited investment plan for your target goals. Careful selection of investment products provides you with the knowledge and the right disposition of assessing for yourself which investment plan is the most compatible to your requirements and your primary goal.
- What is the amount of risk you are willing to take?
Investments are never without risks. The moment you apply for an investment, you are taking up a certain amount of risk in which you may lose or gain money. The largest possible risk that can occur during investment endeavors is that you can lose the entirety of the capital that has been invested. This investment where the risk factor is maximum is generally for business men and those who have a substantial amount of experience in the investment market. Even then investors think it over multiple times and weigh in all the other factors before indulging in the investment plan. For people who have more lenient outlook, it is important first to realize how much risk you are willing to bear if your investment option does not yield the desired result.
Before taking up any investment options, it is crucial to analyze the risk factor that is associated with the investment plan. Only if you are certain that in the event of a non- profitable outcome you will be able to bear the fallout should you invest? If you happen to have doubts about whether you can take the risk of investment, then not opting for investment at the time would be the wise choice of action.
Understanding the market situation and taking into consideration that the timing of the investment will help you reduce the amount of risk in an investment. One should always remember that there is no such thing as an investment pan that has a high returns factor coupled with low risks. Making moderate investments in numbers to avoid risk is advice as opposed to taking up singular high end risky investment schemes.
By taking all of the above questions into consideration, anyone can build an investment plan the best suits his or her needs. Being clear and confident about the inner workings and the returns generated respectively is what makes up the criteria for a good investment plan.
After taking into consideration all the possible factors of the amount of capital risks involved, the number of returns that is to be expected and the main aim and the reason for the investment, anyone with the means can formulate an investment plan best suited to them. An important point that should be adhered to everyone, normal citizen and experienced investors alike, is that after having a definite goal in mind, one should approach a professional financial advisor before engaging in an investment prospect. Getting a professional’s advice and point of view can never be compensated for. Doing this will help verify the applicability of your investment plan, and you also will be able to receive some amount of assurance about the effects and results generated by the investment plan. Having an experts opinion will help identify any missing point or error in judgment while formulating your investment plan. These mistakes can be rectified before hand and thus further reduce the total amount of risk factor of the investment. Even if your investment plan does not have any miscalculations or errors, having a third persons expert and professional consultation will help you receive new and more tricks with which you can better your investment plan and increase the number of returns that will be generated.
By following all these steps and taking care of the formalities and having revised you whims and wishes for the investment prospect, you can build the investment plan that best suits your short term or long term need depending on your choice and can safely indulge in the act of investment itself by choosing the most appropriate investment tool that is available to you.