Strategies are necessary to keep you on the right track. That’s why we make plans for the future, for attending events and for simpler things like going grocery shopping. Investing is not much different. Creating an investment strategy is an important requirement to meet your short-term and long-term financial investment goals. Whether you are new to investing or not, everyone needs to have a plan detailing how to go about investing to achieve a set target.
This post provides five tips on how to create an investment strategy to set up a financially secure future for yourself. Let’s get into it.
Why you need to know how to create an investment strategy.
Before investing, you need to have a reason. It could be to create an additional source of income, prepare for your child’s education, or for your own retirement. Having a reason guarantees the continued drive and motivation to invest and this will definitely be needed because of the amount of energy and time that you will need to commit to investing.
Knowing why you are investing will help you to determine what you invest in and how you go about it. It is the foundation of your investment strategy.
How to create an investment strategy
Creating an investment strategy encompasses a lot more than picking a couple of stocks to invest in. You need to determine your risk tolerance, your goals, the timeframe you have in mind, and your current financial status. It is important that you don’t copy another person’s investment strategy because it probably won’t work for you since your overall investment objectives will not be similar. The best thing to do is to create one by yourself, for yourself. The following steps will guide you on how to create an investment strategy just for you.
- Assess Your Current Financial Status
Determine how much you have and how much you can spare to invest. It is not advisable to invest all that you have even if you are sure that you’ll make a huge return on an investment in a short while. Remember that you have other expenses to take care of. Consider your expenses, income, responsibility to others, debt, and emergency funds. Even though it may not be the first thing that you put your money in every month, it shouldn’t be the last either if your investment goal is important to you. Once all your basic expenses are taken care of, how much can you comfortably invest from the rest of your salary?
As a beginner, you might not want to rush into things especially as you’re just learning how to go about investments. You might not also have a lot of money to throw into the stock market and that’s okay.
A lot of stocks are priced below $500 per share and many more priced below $100 per share. You could even purchase a fraction of a share of a company’s stock if you like and with compounding interest, putting in $500 could grow to be a lot with time.
Invest what you can afford and do it consistently. That’s the way to build your wealth over time.
- State What You Want to Achieve
What you want to achieve depends on the reason you are investing. Would you like to buy a house? Have enough money to retire and travel around the world? Do you just want passive income? Or maybe you want to be able to leave money for your family when you’re gone?
Whatever it is you want to achieve is valid and can be accomplished with determination and consistency.
- Decide Your Risk Tolerance
When investing in a volatile market, a considerable amount of risk is involved. There are high risk and low risk investments. Depending on the amount of risk you are willing to take on, you will need to decide the one to go with. You could also settle on a mixture of the two. Low-risk investments usually come with low returns and high-risk investments usually come with high rewards. With long-term investments, you can be more aggressive, but you may want to be more conservative with short-term investments.
- Decide On The Kind Of Investment To Make
The most common kinds of investments you should consider are stocks, investment funds, annuities, and bonds. They all work differently with different risks associated. Make your research and invest.
- Determine Your Timeline
Make a timeline consisting of milestones to keep you on track. Determine the amount of time it will take for you to achieve your goal and the things you need to do to get there.
Creating a strategy is great, however, it is of no use if you don’t put it into action. Work towards your goal consistently and you’ll see the results in no time.