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  • Samuel Rad

3 Primary steps of investment planning


Steps to invest in a planned manner


The more you spend, the more you earn. However, knowing how and where to spend your money is critical to developing your financial empire. You may be intrigued by concepts such as Bitcoin investment and Metaverse Funding, but are you aware of the hazards involved, like say, the legal obligations of a cryptocurrency investment? Do you know how much time and money you should put into your investments?


We're here to throw some light on the three key components of a wise investment: goals, types, and methods of investing. Let's get your finances in order!


What is a Smart Investment Plan?


The very reason why planned investments often require professional help is that they involve a few planned steps. They are -


  1. Setting your financial objectives and goals.

  2. Weighing or evaluating your risk tolerating capacity.

  3. Planning your investment portfolio.

  4. Following up with the investment outcomes.


Smart investment planning involves proper assessment of the period of time and risks involved, along with calculating the profit to be gained from each asset. These are the pointers to focus on to make sure that you invest smartly.

1. Objectives of a Planned Investment


1. Safety

Risk-less investment is often the next best option. Some low-risk, profitable investments include government-issued funding schemes, bonds issued by stable, long-term corporates, treasury bills, and commercial papers.


2. Income

Passive income is extremely beneficial whether you are employed or retired. Receiving money in your account that you did not have to actively labor for feels like a gift from yourself at times!


3. Capital Growth

Contrary to common belief, capital growth is not simply accomplished by owning assets. You must sell them to make a higher profit, whether they are real estate or stock shares. Most investors shun equities in favor of exchange-traded funds or mutual funds.


4. Tax Minimization

One of the main benefits of choosing investments is reduced tax liability. Someone with a high salary, for example, might choose to invest in specific tax-advantaged accounts to lower income taxes.


5. Liquidity

Backing your money up in assets such as bonds or bond funds will keep the bulk of your wealth liquid. Stocks are difficult to liquidate since they are easily sold but selling them at the wrong moment might result in a significant loss of profits.


6. Safe Retirement

Retirement savings are an important aspect of our life. Because you will not be able to work your entire life, building a nest egg for your retirement years is critical.


So, what is the main objective of investment planning? While investment objectives can be varied - it could be just tax saving or retirement funds, the primary goal still happens to be "income". And to meet this goal you cannot play safe. The higher the risks taken, the higher the returns.


2. Types of Investment Planning


1. Ownership Investments

Stocks such as Blue Chip/Growth/Dividends, real estate, and bullion (gold, silver, or diamonds) are examples of ownership investments. It entails the purchase and ownership of assets that will rise in value over time. Have enough money to put into high-priced assets? Contact the best celebrity financial advisor in Los Angeles today!


2. Lending Investments

Lending investments include bonds such as corporate or government-issued certificates, savings accounts, and direct peer-to-peer lending.


3. Cash Alternatives

Cash alternative investments include Mutual and Provident Funds, Certificates of Deposit, Unit Linked Insurance Plans (ULIPs), National Pension System, and Senior Citizen Saving Schemes. These are available in both short-term and long-term alternatives and carry fewer risks than the other options on the list.


3. How to Invest?


1. Analyzing Financial Needs

Analyze and distinguish your needs and desires in terms of budgetary constraints. Consider family size and income range, current and future life objectives, and speak with a fiduciary financial advisor to assist you to decide further.


2. Diversifying Investments

Assemble a diverse portfolio of assets to achieve a proper balance of risks and profits. Invest in assets that will benefit you and your families, such as a life insurance policy or other financial instruments. Gain knowledge in concepts like how to use Roth IRA to become a millionaire. It will assist you in establishing a sound financial foundation for the future.


3. Calculating Risk and Asset Allocation

Monitor all of your investments at regular intervals. Evaluate the returns to see if they are generating a reasonable profit, and re-balance the funds as needed by investing in other prospective funds or accounts.


4. Time Objective

It is practically difficult to determine profits based just on investment returns; you must also include the time factor that’s required to achieve the significant gain. Depending on whether you are aiming for short-term or long-term investment opportunities, your investment plans take the right shape.


5. Market Reconsideration

Understand the societal and legal restrictions that apply to any investment you are considering. Are all of your needs being met? Does it guarantee a consistent, high return? What obligations do you have in terms of taxes or legal issues if the market suddenly changes? Think about each of these possibilities for your forthcoming investment plans.


For instance, due to the epidemic, fewer individuals choose to work in workplaces because they want to work from home for safety reasons. This resulted in a significant loss in terms of building upkeep, ongoing rent, and taxes that the employers had to pay for the current premises. Ensure the same does not happen with you – work with a wise real estate advisor to keep such business hazards at bay!


Quick Look


1. Smart planning involves considering these fundamentals - income growth, capital stability, managing tax burdens, retirement savings, and emergency (liquid) funds.


2. Calculate all your investment possibilities, selecting just those that best meet your demands among ownership investments, lending investments, and cash alternatives.


3. Estimate the time taken by each investment to produce a profit. Consider the current market conditions, and your financial demands, and estimate your risks to accomplish that.


What is the best investment planning?


Investments can supplement your income, finance your retirement, or even get you out of a monetary bottleneck. Above all, investment boosts your purchasing power. 2022 has certain investments under its roof that have outperformed despite the post-pandemic economic stresses! S&P 500 index funds, dividend stock funds, cryptocurrency, and short-term certificates of deposit, are only a few among them.

The 70/30 Rule of Investments:


In the financial world, today, this is quite a much-heard term. Concepts like the 60/40 and 80/20 rule have often done the rounds too. The ratio depicts the amount of risk taken to the amount with which the individual is playing safe. We’ll discuss this a bit more in detail.


For instance, the 70/30 rule calculator is based upon the concept of investing 70% of your income in high-risk stocks, the ones that hold the probability of higher returns. The remaining 30% is supposed to be in bonds, cash, and cash equivalents.


On either side of this 70/30 rule, pops up 2 alternatives - the 60/40 rule and the 80/20 rule. 70/30 rule, apparently, replaced the 60/40 rule (which involved lesser risks, and therefore, lesser bulk returns). Now, if your income is way higher than at par with your living standards, you might choose to allocate funds per the 80/20 rule. Not many individuals can opt for such high-risk levels; nevertheless, the fruits are more succulent!


In Conclusion


We now have the three essential guidelines to help you reduce risks and make wise investments. Do you still have any lingering questions in the back of your mind? To start building a bright financial future, get in touch with the best financial therapist in Los Angeles right away!