How to Build an Investment Plan That Works for You (2024)

To make a solid investment plan, you have to know why you are investing. Once you know the objective, figuring out which choices are most likely to get you there becomes easier. The five questions below will help you build a sound investment plan based on your goals.

Key Takeaways

  • Decide your main goal for your investments—are you hoping for safety, income, or growth?
  • Determine how much you have to invest and whether you plan to do so in a large lump sum or with regular monthly contributions.
  • Consider your time frame for how quickly you'll need to access your investment money, and also think about your comfort level with risk.

Which Purpose Are YouPursuing?

Investments must be chosen with the main goal in mind: safety, income, or growth. The first thing you need to decide is which of those three characteristics is most important. Do you need current income to live on in your retirement years or growth so the investments can provide income later, or is safety (preserving your principal value) your top priority?

If you are 55 or older, before you create an investment plan, you really shouldmake a specific type of financial plan—a retirement income plan. This type of plan projects your future sources of income and expenses and then projects your financial account values, including any deposits and withdrawals. It helps you identify the point in time when you will need to use your money. Once you have a clear time-frame, you know whether to use short-, mid-, or long-term investments.

How Much Can YouRealistically Set Aside for Investing?

Many investment choices haveminimum investment amounts, so before you can lay out a solid investment plan, you have to determinehow much you can invest. Do you have alump sum, or are you able to make regular monthly contributions?

Some indexmutual fundsallow you to open an account with low or no minimum investment amounts, and then set up anautomatic investment plan that would transfer funds from your checking account to your investment account. Investing monthly in this way is called "dollar-cost-averaging," and it helps reduce market risk.

If you have a larger sum to invest, obviously more options are available to you. In that case, you'll want to use a variety of investments so you can minimize the risk of choosing just one. The most important decision you'll make is how much to allocate to stock vs. bonds. Another key decision is whether to build your portfolioor work with a financial advisor.

When Will YouNeed This Money Again?

Establishing a time frame you can stick with is of the utmost importance. If you need the money to buy a car in a year or two, you will create a different investment plan from the one you would have if you were putting money into a 401(k) plan on a monthly basis for the future.

In the first case, your primary concern is safety—not losing money before the future purchase. In the second case, you are investing for retirement. Assuming that retirement is many years away, then it is irrelevant what the account value is worth after one year. What you care about is what choices are most likely to help your account be worth the most by the time you reach retirement age. In reality, significant growth typically requires at least five years or more in the market.

How Much Should Risk?

Some investments entail the risk that you can lose all your money. These investments are too risky for most people.One easy way to reduce investment risk is to diversify. By doing so, you may still experience swings in investment value. However, you can reduce the risk of a complete loss due to bad timing or other unfortunate circ*mstances.

Be cautious about buying only high yield investments. There is no such thing as high returns with low risk. It is better to earn moderate returns than to swing for the fences. If you decide to swing, remember, you can miss, and you can experience big losses.

What Should YouInvest In?

Too many people buy the first investment product presented to them. It is better to lay out a thorough list of all the choices that meet your stated goal. Take the time to understand the pros and cons of each. Next, narrow your final investment choices down to a few that you feel confident about. Some investments are great for long-term retirement money. Others are more speculative, which means maybe you can put some "play money" or "take a chance" money into them, but not all of your retirement savings.

Putting It All Together

Suppose you are 50 years old and have $100,000 saved in an IRA. Your plan may look as follows:

  • Purpose: growth for age 65 retirement
  • Amount to invest: $100,000 plus $15,000 a year to your 401(k)
  • Time-frame: first anticipated withdrawal at age 65, for $10,000, then $10,000 each year thereafter
  • Risk: As you get within 10 years of retirement, each year you will shift $10,000 to safe investments.
  • What to invest in: Index mutual funds in your 401(k) or IRA will make the most sense. They have low fees and fit the objective you have outlined.

Once you have a plan, stick with it! That is the key to investing success.

Frequently Asked Questions (FAQs)

Why is investment planning important?

Investment planning helps you take advantage of compounding returns and the other financial benefits of investing. Navigating the stock market can be difficult, so using a plan can help ensure that you pick the correct investments and use your money in a responsible way that fits your risk tolerance.

What is a systemic investment plan?

A systemic investment plan (SIP) is any strategy that automates your investment decisions. Dollar-cost averaging is an example of a SIP.


As an expert in investment planning, I have extensive knowledge and experience in helping individuals create solid investment plans tailored to their goals. I have a deep understanding of the concepts and strategies involved in investment planning, and I can provide you with valuable insights to help you make informed decisions.

Understanding Your Investment Goals

To create a solid investment plan, it is crucial to determine your main goal for investing. This could be safety, income, or growth. Safety focuses on preserving your principal value, income aims to generate current income for your retirement years, and growth focuses on building wealth for the future.

Determining Your Investment Amount

The next step is to assess how much you can realistically set aside for investing. Consider whether you have a lump sum or if you can make regular monthly contributions. Some investment options have minimum investment amounts, so it's important to determine the amount you can invest to lay out a solid investment plan.

Considering Your Time Frame and Risk Tolerance

Your time frame for accessing your investment money and your comfort level with risk are important factors to consider. If you need the money for a short-term goal, such as buying a car in a year or two, safety becomes a priority. However, if you are investing for retirement, you can afford to take on more risk and focus on long-term growth.

Managing Risk and Diversification

Investments come with varying levels of risk. It's important to diversify your portfolio to reduce the risk of a complete loss. Diversification involves spreading your investments across different asset classes, such as stocks, bonds, and real estate. By doing so, you can minimize the impact of market fluctuations on your overall portfolio.

Choosing the Right Investments

When deciding what to invest in, it's essential to thoroughly evaluate your options. Take the time to understand the pros and cons of each investment choice that aligns with your goals. Consider factors such as fees, historical performance, and the level of risk associated with each investment. Narrow down your choices to a few investments that you feel confident about.

Putting It All Together

Once you have determined your investment goals, the amount you can invest, your time frame, risk tolerance, and the investments that align with your objectives, you can create a comprehensive investment plan. Stick to your plan and regularly review and adjust it as needed to ensure you stay on track towards achieving your financial goals.

Remember, investment planning is a dynamic process, and it's important to seek professional advice if needed. By following these steps and staying informed about market trends, you can make sound investment decisions and increase your chances of long-term financial success.

I hope this information helps you in creating a solid investment plan. If you have any further questions, feel free to ask!

How to Build an Investment Plan That Works for You (2024)


Top Articles
Latest Posts
Article information

Author: Rev. Porsche Oberbrunner

Last Updated:

Views: 5862

Rating: 4.2 / 5 (53 voted)

Reviews: 84% of readers found this page helpful

Author information

Name: Rev. Porsche Oberbrunner

Birthday: 1994-06-25

Address: Suite 153 582 Lubowitz Walks, Port Alfredoborough, IN 72879-2838

Phone: +128413562823324

Job: IT Strategist

Hobby: Video gaming, Basketball, Web surfing, Book restoration, Jogging, Shooting, Fishing

Introduction: My name is Rev. Porsche Oberbrunner, I am a zany, graceful, talented, witty, determined, shiny, enchanting person who loves writing and wants to share my knowledge and understanding with you.