How to create your very own investment plan

Financial success doesn’t come overnight. In order to become financially flexible and free, it takes planning and commitment. One of the best things you can do to ensure your own wealth creation is to create an investment plan specifically tailored to your needs. An investment plan will help clarify why you want to invest, your parameters for investing, and how to follow-through with your strategy. With a solid investment plan in place, anyone, no matter their knowledge level, can invest successfully.

Investment plan

Why you need a plan

Having an investment plan is no different than having a plan for anything else in life. What happens when you shop for groceries without a list, or go buy an appliance without any knowledge of what you need? More often than not, you will make a purchase that is unwise, or pay too much for an item you could get at a cheaper price somewhere else.

Similarly, preparation is the key to financial success. A plan for investing helps you to understand why you are investing while also identifying investments that suit your needs in a timely manner. Without a plan, it might take years before you invest, and when you do, you would have already missed out on opportunities to grow your wealth.

An investment plan is also a reminder to keep you focused in times of doubt. If the market is in a recession or you begin to get emotional about your investments, you can always refer back to your investment plan to steer you in the right direction. Because when it comes to investing due diligence is king, and emotions can leave you making poor decisions.

Creating a plan

Now it’s time to create an investment plan. Using the following outline, you can determine the backbone of your investment strategy and from there choose the best strategic investments for your needs. Remember, everyone is different, meaning that your investment needs could be completely different from those of your friends and family. The most important thing is to be honest with yourself and your financial situation, otherwise, you will likely choose investments that aren’t the best for your needs.

Current financial status

Before you can get started on an investment plan for the future, you must have a holistic picture of your finances today. Where are your assets? Do you own stocks, bonds, etc.? Do you have debt, and if so, what is the interest rate you are paying on your debt? The importance of these questions cannot be overstated. Too often, people want to move forward with investing before understanding their current financial status, causing them to make unwise decisions.

Goals

Determining your investment goals will take into account many factors, such as your current financial status, education, age, and more. Are you looking to invest in order to save for college? Saving for retirement? Or maybe you are expecting a child in the coming year? All of these are great reasons to invest, but each come with their own investment strategies.

Investment goal

Those investing for retirement will benefit from a tax-savings retirement plan, while those who are investing for a trip or rainy day will want to have more access to their funds. This distinction will help drive the types of investments you will target.

Timeline

What is your investment timeline? Are you looking to cash out from your investments in one year? Ten? Thirty? This timeline will help dictate the types of investments you will make in a similar way to your investment goals. A long-term investor might be happy to invest in an liquid asset that locks their capital in place for many years, while a short-term investor will want investments that are more liquid in case they need to take money out after a short period of time.

Risk

There is no reward without risk when it comes to investing. For those who are extremely risk-averse, you can invest in government-backed securities, which pay small amounts of interest (extremely small) but also come backed by the government which sells them. On the flipside, there are plenty of risky investments out there which could make you a fortune, but also cause you to lose your shirt. Penny stocks and cryptocurrencies are a few of the most risky, but also potentially rewarding investments out there.

Then there are those investments in the middle of the risk-reward spectrum which provides you a solid return with limited risk. In general, these investments are best suited for most investors who are looking for returns but don’t want to risk putting their capital at significant risk.

Active or passive

Do you have a background in finance or the willingness to learn? If so, you will likely want to have an active hand in your own investments. But for those who don’t have the requisite knowledge and/or time, a passive investment strategy will be a better option.

This distinction is an important one, as active investors spend much more time managing their capital and re-allocating it regularly. Active investors put their capital in individual stocks and may make trades on a monthly, or even weekly basis. Alternatively, passive investors choose investment options that are automated. Historically, passive investing required paying professionals large sums to manage your money, but today there are a variety of new fintech tools and investment options that make passive investing easier than ever.

Taking action

Once you have answered the previous questions and identified your investment strategy, it is time to put your plan into action. The following steps will help guide you in following through with your investment plan:

  1. Set a starting amount and a realistic monthly contribution – Be realistic. Don’t attempt to invest more money than you can afford. You can always increase your monthly contribution if your financial status changes.
  2. Choose your investments and create a diversified portfolio based on your investment strategy – Given the answers to the previous questions, you will want to consider a variety of investment options, from stocks and bonds to alternative investments like peer-to-peer investing and cryptocurrencies.
  3. If you aren’t aiming for extra-income, think of how you can reinvest your profits – Many investment options allow you to invest any interest and/or dividend payments directly back into your investment, giving you the power of compound interest.
  4. TRACK, TRACK TRACK! – It’s important to stay on top of your investments and monitor their growth to achieve your financial goals. Set aside time regularly to check-up on your investments and reassess your investment plan.
  5. Adapt plans constantly – Got some extra cash? Awarded a raise at work? Economic crisis? Unexpected expenses? Newborn child? All of these life events can come unexpectedly. Adapt your monthly contributions or withdraw funds if you need, but adapt to your new reality accordingly.

Remember, your plan isn’t over once you’ve identified your investment strategy. On the contrary, as you start to take action your plan follows you all the way through the end of an investment. These steps will not only help you get started with your plan, but continue to make the best decisions as your investments, goals, and life situation changes over time.

Real-life example

It can be useful to examine a real-life example to see how a long-term investment can pay immense benefits over time. Let’s take John, a 30-year old software developer who wants to retire at the age of 60. John doesn’t have a lot of knowledge of investing and really doesn’t have the time to learn, so he is looking for an investment that is hassle-free and automated while providing him a solid return. Additionally, given his current financial situation, John can begin with a €500 per month investment into his account, and increase his contribution by 5% each year.

John doesn’t have a lot of money to invest today, but wants to find an investment that he can use to grow his money over the long-term. So, John chooses the Go & Grow portfolio option from Bondora. With Go & Grow, John has picked an investment that is automated, low risk, and provides a solid return.*

In the chart below you can see that after 30-years of his Go & Grow investment, John will be a millionaire! Not only that, but assuming John’s living expenses are €30,000 per year, he will be able to live off of his interest earnings by the age of 53 and begin to withdraw his interest payments for the remainder of his life.

Real-life example - Go and Grow

Be prepared

Creating and following through with an investment plan is one of the keys to success for any investor. Identifying an investment strategy and putting it into action puts you in the driver’s seat of your own financial wellbeing, while at the same time giving you the best chance of investment success. Be sure to create an investment plan for yourself, doing so will help you on the path to the financial future you have been dreaming of.

*As with any investment, your capital is at risk and the investments are not guaranteed. The yield is up to 6.75%. Before deciding to invest, please review our risk statement or consult with a financial advisor if necessary.

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