Building your Financial
Success
With Alain Aube
Financial Investments
Tips for basic investment planning
IN JUST ABOUT ALL OF life’s endeavors,
planning is critical to success. Investing is no different—with an
effective plan, you increase your profit potential.
In fact, an investment plan is an essential part of an overall financial
strategy. An investment plan lets you put your savings to work,
according to your goals.
Here’s how to establish and maintain an investment plan.
Set goals The first step is to understand
why you want to invest in the first place. Everybody has their own
reasons, whether it’s to build retirement wealth, buy a bigger house,
start a business or put children through school. Once you’ve established
realistic goals, you can go about calculating how much wealth you’ll
need to accumulate.
Get comfortable with risk The amount of
investment risk you’re willing to take will have a huge impact on your
financial plan. If you can tolerate a higher degree of risk, you could
potentially experience greater long-term investment growth—but you also
increase your chances of having your portfolio go down in value,
especially over the short term.
Some investors are uncomfortable with risk, while others don’t mind the
ups and downs of potentially volatile investments such as equities. But
it’s not just your psychological tolerance that comes into play. You
must consider factors such as your age and the length of time until you
retire. The closer you are to leaving the workforce, the more you should
temper risk. The last thing you need is to jeopardize your retirement
wealth.
Put together a diversified portfolio When
you know where you’re going, it’s time to choose investments that will
get you there.
For most investors, mutual funds are
ideal because they offer instant diversification. Or, you can invest
directly in a diversified portfolio of securities such as stocks and
bonds.
It’s important to diversify. Your portfolio should include the three
basic asset classes—cash, fixed income and equities. This way you have
some protection from downturns in any one type of asset, while taking
advantage of a wider range of potential returns.
Your asset mix will depend on your goals
and personal circumstances. As a general rule, your portfolio should
have a higher proportion of equity investments to build wealth while
you’re young. Equities may need to be pared back in favour of more
secure income-oriented investments as you grow older.
Regularly review your plan and rebalance
as necessary Once your investments are in place, don’t ignore them. You
should conduct a review of your portfolio performance at least once a
year. More frequent assessments may be required because of financial
market volatility, or changes in your life such as marriage or divorce,
the birth of a child, a new job, or increased salary. Rebalancing your
portfolio is important to make sure it still fits your needs.
The best way to help ensure your goals
are suited to your needs, and that your investment plan is effective, is
to work with a financial advisor. An advisor can help you define goals,
assess your risk tolerance, set up a strategy, and choose appropriate
investments. He or she can also show you how to measure the performance
of your investments against appropriate benchmarks.
