7 Tips To Create An Investment Plan

June 22, 2017
1. Do not react to the market. Be proactive instead.
Make your investment moves before any major market action takes place. It's best to have a good plan on paper before executing it, and it's best to execute it during a time when the market isn't dancing around wildly. Get the answers to these questions before you invest and make it a part of your plan:
What are your investment goals?
What is your risk tolerance? Evaluate yourself or take some tests to find out!
What is your time horizon?
What does your tax situation look like?
Replies to these questions can help point you to the right types of investments. Anticipate some possible market moves and know what you'll do before something big happens!

2. Take investment positions in your portfolio when the market is stable or depressed.
Whenever I build a position in my portfolio, I always try to do so when the market is level or weaker. I prefer not to buy during stronger or hotter periods and I try not to chase returns. That isn't to say that buying while the market is going on strong is a bad thing or even a wrong move since momentum can certainly take you far. In the long run, it may not hurt you to buy during an upswing. But I tend to be a contrarian and I like capitalizing on weakness, where there could be more opportunity. Others may disagree with me but this is what I'm comfortable doing. You can certainly make money using different investing styles, and I've so far stuck with what's worked for me.

3. Decide where you're going to put the money. Hint: KISS (as the saying goes: keep it simple and stupid). If you consider yourself a small investor (most of us do) who does their investing on the side, then there's no point in spending hours upon hours hand-picking stocks and bonds to build your portfolio unless of course, you enjoy the process. Instead, determine your needs and find a mutual fund, or set of funds, that fits those needs.

4. Create a core diversified portfolio.
Let's elaborate further. Build a strong foundation for your investments by creating a diversified portfolio of your core holdings. You can do this by assembling your own portfolio by choosing mutual funds and ETFs across various conventional asset classes such as equities, bonds and cash. Figure out what types of asset classes you'd like represented and what percentages they should represent in your mix. Such a portfolio needs to be in line with your risk profile so you can sleep well and be assured you're doing the right thing.

5. Add some ooomph to your portfolio.
Maybe you need to try some hedging techniques. Maybe you need to develop a portfolio that includes alternative asset classes to add more diversification. This can be achieved by adding negatively correlated asset classes to your mix. You may need some expert help when trying this out, so research and learning are key when you've decided to go this route. You can start by reviewing material from educational investment sites to learn how to tackle investments beyond the standard equity/bond combinations.

6. If you'd rather not create or self-manage your own portfolio, buy into a preassembled one. There's quite a number of mutual funds out there that can be considered as "one stop shops". The purpose of such funds is to try to take the guesswork out of selecting diversified investments by keeping strict allocations that in some cases, conform to targeted timelines (depending on the type of fund they are).

7. Determine how much "extra" you have to invest. Do you have extra cash in your bank account or credit union? Do you have more money than you really need to keep on hand to cover emergencies? Take the excess and make an initial lump sum investment with an investment house or brokerage. Then, determine how much you can invest out of every paycheck. Even if it's only #25,000 or #50,000 every months, starting now will help you to get in the habit of putting money away regularly. As your income grows, increase the amount that you regularly sock away.

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Read Comments

Steven Rich
Sep 17, 2018:
Well done

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