Finance

How to Build an Investment Plan That Works for You

Investing for the future is an integral aspect of financial planning. But investing requires careful planning. Read on to know more about how to build a good investment plan that works for you.

No matter if you are a salaried employee or a business owner, you would surely want to set aside a part of your income for the future. But, savings will not help your money grow. So, instead, you can choose to invest in various investment schemes to allow your money to grow and build a sizeable corpus for the future. While as easy as it may sound, investing requires meticulous planning.

Here is a step-by-step guide to making an effective investment plan.

Assess your financial condition

First and foremost, you must start by assessing your current financial situation. You must review your assets, disposable income, payments, and liabilities and determine how much money you can spare for investment purposes. The best way to do this is to prepare a monthly budget and allocate the funds for your regular expenses, emergency funds, savings, etc. This will help you know exactly how much money you can afford to invest without compromising your other expenses and financial goals.

Another important aspect to consider is how accessible you want the investments to be. Do you want to invest in a scheme that gives you liquidity, or can you afford to invest in a plan that has a lock-in period?

Set an investment goal

Making an investment plan without any concrete and realistic goal is like firing an arrow in the dark; it will not be effective. Before you start investing, you must determine why you are investing? This could be anything, be it building a corpus for your retirement, buying a new home, or even making an expensive lifestyle purchase.

Just as it is important to define your investment goal, you must also set a deadline or timeline to achieve the same. In other words, you must decide how quickly you want your investments to grow; do you want fast growth, or you can afford to stay invested for a longer period. This will help in choosing the right investment scheme.

Experts suggest that all goals can be categorised under three broad buckets – safety, growth, and income. Safety implies that you want to maintain your current level of wealth, income is when you want your investments to grow and provide an active income in the future, and growth is when you want to build a big corpus over a period.

Know Your Risk-taking Capacity

The next critical step in making an investment plan is to know your risk-taking capacity. Typically, the youngsters have a higher risk-taking ability since they have lesser financial responsibility and dependents. So, when you start investing early, you can afford to take an aggressive approach and invest in high-risk instruments and leverage the benefit of time to recover from the losses. Remember, high-risk investments also mean higher returns.

On the contrary, if you are old-aged and have liabilities and financial dependants, you must be conservative in your investment approach and invest in less risky schemes that provide smaller but consistent returns.

Choose the Right Investment Scheme

Once you are certain about the maximum amount you can afford to invest, your goal, and risk-bearing capacity, you must choose where to invest based on these factors. You can consider investing in traditional options like bank fixed deposits or investing in stocks and mutual funds. Experts recommend it is better to spread the investment across different sectors to lend stability to the  portfolio.

If you are not willing to take too much risk, you can invest a maximum amount in government-regulated schemes like the National Pension Scheme, Public Provident Fund, etc. If you are willing to take risks, you can consider investing in mutual funds with maximum allocation in equity funds.

Final Word

Thus, the key to making a successful investment plan is to be aware of your finances and making a smart choice of investment that suits your needs and risk tolerance.