Whether you are just considering how you can leverage your money to secure your financial future for the first time or you would like assistance achieving the goals that you have set out for yourself, an investment planner can be a valuable asset. You can work alongside an investment planner to achieve your goals by benefiting from their thorough knowledge of the field so that you can make informed choices that are right for you.
What Is The Investment Planning Process?
Investment planning is the process of being strategic with your money. This may include, for example, talking with an advisor to create an emergency fund of liquid assets that can be used for urgent matters such as home repairs, paying insurance deductibles or using the funds for the unexpected.
Taking your financial literacy to the next step includes learning more about how investing works and being as efficient as possible with where to put your money. Investments can serve a wide variety of purposes, from netting you a guaranteed rate of return to establishing a portfolio of a certain risk tolerance given your specific time horizon.
The questions of how much risk to take and what to invest in can have huge impacts on your finances. An investment planner can help you navigate these areas carefully and in alignment with the goals that you have, both now and in the future.
Step 1: Determine Your Goals
The first step in the investment planning process is to determine your goals. You should make an effort to be as concrete as possible; it is harder to achieve a vague goal than it is a defined one. For example, saying that you would like to have more money in five years than you have now is a worthwhile goal, but can you add more detail?
Envision yourself in the future, having achieved what you want, what does your life look like? What financial habits do you want to establish with an advisor to get to your goals? A desire to retire early or take multiple vacations per year? All of these aspirations should be included among your goals so that you can plan for ways to achieve them.
Step 2: Understand Your Tolerance For Risk
Next, you and your investment planner will need to determine your risk tolerance. A person’s risk tolerance is a measure of your willingness to withstand potential losses for the potential for long term returns. With risk comes reward. Calculating risk tolerance takes multiple factors into account, such as your age, time horizon and general personal attitude toward risk versus safety.
If you are very risk tolerant, you may be willing to put a significant amount of money into a portfolio that has a chance to perform extremely well but also a chance to drop in value quickly. Those who are more risk averse would rather see smaller but safer gains with the potential to lose less money.
Step 3: Develop A Corresponding Portfolio
Once you understand your goals and risk tolerance, that is, your tolerance or aversion to risk, you can work with your planner to create a portfolio that fits to your individual needs. This will include a wide range of asset classes to increase diversification, reduce risk and improve your potential long term outcomes.
It is common to diversify a portfolio into many asset classes, all of which can move differently. The types of funds that you select matter, such as the fees, mutual funds or ETFs and active or passive management—and all will factor into your long term goals.
Step 4: Evaluate And Adjust For Performance
A portfolio is only successful if it is actually working for you, and you cannot know how effective it is if you set it and forget it. Your planner can help you to evaluate your financial portfolio to understand whether it is working as intended and helping you to reach your goals or whether additional adjustments are needed.
They can also help you to understand how to adapt to changing markets, but remember—time in the market is generally considered superior to timing the market, which means that you should not cash out during a market downturn. Your investment planner can help you to grasp why and what to do instead and removes the emotions from investing.
Trust The Professionals To Help Your Investment Planning Process
You may feel that you do not have enough assets to get started with investments, or you may not be sure of how to proceed with your current allocations. No matter your situation, the best time to take control of your financial health is now.
The investment planners at Inflection Advisors would be happy to help you understand your options. Reach out to schedule an appointment to discuss your financial future or to ask any questions that you may have.
