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Why You Should Have An Investment Plan

Many people go through life not having a proper plan in place for everything they do, be it their careers or their relationships. This lack of planning would result in missteps and mistakes, and can be a major drag for someone in terms of time and resources wasted. The situation is the same for investments – we need to ensure that we have a proper plan in place, because if we neglect to plan properly, we are setting ourselves up for eventual failure when it comes to our financial goals. So, how does one go about designing an investment plan and what should it entail?

First, it’s important to define what an investment plan is. This consists of a list of targets and achievements which you would desire for your investment portfolio. This should ideally be broken up into milestones so that you can track your progress easily, while it also allows you to stretch out the target to avoid rushing and ending up with less than desirable results. An example of a plan would be – save up $100,000 by age XX, invest $20,000 in a year or achieve a return of X% over three years.

Investment plans should also lay out your investment philosophy, time horizon and risk tolerance to make it more complete. This ensures you do not unknowingly deviate from the plan and end up nursing bad losses from ill-timed investments or moving into investments which you do not have any competence in. The plan need not be extremely detailed; broad guidelines will suffice. But it has to be clear, coherent and logical for the investor to feel that it sufficiently crystallises his philosophy without leaving anything out.

Milestones are important as it allows us to track our progress over time to see if we are on track. Realistic milestones should be set based on one’s personal financial situation (e.g. do not expect to save $100,000 a year when you are earning just $50,000 a year). The milestones can be tweaked or amended as time goes by when your financial situation changes. The investor should remain flexible when it comes to the plan as your circumstances can change fairly often or when you encounter a major life event, be it negative (e.g. loss of job) or positive (e.g. sudden windfall, a promotion, marriage or having a baby).

When an investment plan is clearly articulated, it helps to keep our mind focused and helps us to stay true to our goals and targets. If you do not already have an investment plan in place, I would strongly encourage you to start writing one now.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.