If you have free money that you don’t need right now, there are two or both ways you can use that type of money: save and invest.
You could save some extra money to buy something later this year, like a new car, a new plasma HDTV, or a new set of furniture. In this case, you should keep your money in a savings account. It will get you next to nothing – or nothing – to your advantage, but you can rest assured that your money is safe until the time to buy. So if you have a short term savings goal, a savings account is a good place to keep your money.
But if you need to save some extra money for a long-term goal like retirement or children’s education funds, you might want to consider putting them where they can potentially make more money. . It’s investing. As with any major decision, investing your hard-earned money requires proper planning. This is how an investment plan comes out.
When developing an investment plan, it is necessary to take into account several factors to avoid making bad investment decisions. Here are 10 of those factors:
10 factors to consider when developing an investment plan
1. Your investment objective
Your investment objective is one way of determining where to invest your money. If you want to accumulate your money fast and don’t mind risking it because you have enough time to bounce back from the recession, you can consider taking aggressive risks for higher profits. But if you are already near retirement, you certainly don’t want your money to decrease in value when you retire. So, you should consider investing in less risky investments such as bonds.
It’s also possible that you have two different goals, like investing in a car for a down payment ( short ) and invest for retirement or for children’s education ( long term ). In this case, you can divide your money into two different investment programs.
2.Risks associated with it / what risks you may take
While investing offers the potential to multiply your money and earn you huge returns, it also carries the risk of losing your hard earned money. This is why it is generally advisable to invest only the money that you can afford to lose.
3. The right time to invest
While investing can be a great option, there is always a good time to do it. Invest at the wrong time and you end up biting your fingers. For example, if you have huge debt, it makes sense to pay off at least some of it before you invest. Remember that getting your investment back is not as easy as withdrawing funds from your savings account. So you need to think twice before spending all your extra money on investments.
4. Your age
Yes, your age is another factor you need to consider when determining where to direct your investment and how much to invest. By investing, young people have an advantage. You can wait for your investment to pay off ( remember that investing takes time to make a profit ).
You’re also safer at a younger age because you have fewer responsibilities, more disposable income, and you can more easily pull yourself together when you make mistakes.
5 How long do you need the money
The date you need your money will also determine where to invest and how much to invest. If you plan to use this money for retirement, you can invest a small amount over a long period – if you are still young. But if you’re already near retirement, you might want to consider investing a larger amount in a high-yield investment program or plan.
The more you desperately want a quick return on your investment, the more likely you are to be scammed. So, you want to be on the safe side, or to completely avoid all the investment opportunities that seem Too good to be true or by performing thorough background checks before seizing any investment opportunity.
7. Your emergency fund
The amount you lock in your investment portfolio depends on how much you want to have in your emergency fund. Having an emergency fund is more than necessary as it will cover any unforeseen expenses that might arise. The more money you need to keep in your emergency fund, the less you can invest.
8. How will you diversify your investments
While you may be tempted to invest all of your money in a high yield system, one of the most important ways to reduce investment risk is to diversify your investments. don’t put all your eggs in one basket. So, when developing an investment plan, you need to decide in which baskets you put your eggs and how many eggs you put in each basket.
9. Growth potential of the market or industry
Certain markets or industries such as transportation, health and food will remain profitable forever. But some industries, such as technology, can be very volatile. As soon as a new aspect of technology replaces the old one, all investments in the old cease to be profitable. While transition markets can be very profitable, only invest in them if you are investing for the short term. If you are investing for the long term, consider evergreen markets.
10. Your exit strategy
Whether or not your investment delivers the results you want or not, you ultimately need to get your money back. When and how you do it is up to you. And that should be in your investment plan as well.