Important Steps to Build and Develop the Best Investment Plan

Making an investment plan is the process of matching your financial goals and objectives with your financial resources. It is a core component of financial planning and it is impossible to have one without the other.

The basics of investment planning are establishing goals, understanding risk tolerance and appropriately allocating assets. A successful plan encompasses all of these components and more.

Basically, investment planning is a process that begins when you are clear on your financial goals and objectives. There are thousands of different investments. The most commonly used are cash, equities, bonds and property. Each of these has different characteristics and a good investment plan will usually contain all of these.

This article will focus on how to build and develop a best investment plan for your portfolio.

Steps in How to Build a Good Investment Plan

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.

Business investment planning

Which Purpose Are You Pursuing? 

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

If you are 55 or older, you should make a specific type of financial plan called retirement income plan. This is necessary before you create an investment plan.

This type of plan projects your future sources of income and expenses. Then it projects your financial account values including any deposits and withdrawals. It helps you identify the point in time where 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 You Really Save for Investing?

Many investment choices have minimum investment amounts. Thus, before you can lay out a solid investment plan you have to determine how much you can invest.

Some index mutual funds allow you to open an account with as little as $3,000. Then, set up an automatic investment plan starting with as little as $50 a month which 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 versus bonds. Another key decision is whether to build your portfolio or work with a financial advisor.

When Will You Need This Money Again?

Establishing a time frame you can stick with is extremely important. If you need the money to buy a car in a year or two, you will create a different investment plan.

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 retirement is many years away, it is irrelevant what the account value is worth after one year. What you care about is what choices will most likely help your account be worth the most by the time you reach retirement age.

How Much Risk Should You Take?

Level 5 investment risk is 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 circumstances.

Be cautious of buying only for high yield investments. There is no such thing as high returns with low risk. Better to earn moderate returns than swing for the fences.

What Should You Invest In?

Too many people buy the first investment product presented to them. Better to lay out a thorough list of all the choices that meet your stated goal. Then 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.

Steps on How to Develop your Investment Plan

As an investor, knowing your strengths and weaknesses – as well as how much time and effort you are willing to commit to charting your investment course – will put you in the best position to succeed.

Steps on How to Develop your Investment Plan infographic

Make an Assessment

The best place to start any journey is by knowing where you currently stand. Generally speaking, the younger you are, the more willing you should be to take risks. It’s not vital at this point to be pouring 100% of your expendable funds into investing.

Your time horizon, or how long before you need to touch the money, goes hand in hand with your age. If your time horizon is 25 years or more, you can consider yourself near the top of the risk profile for investing. This doesn’t mean that you should be taking foolish risks, but rather that you can participate fully in the equity markets should you decide to. While stock markets returns are naturally more volatile than other asset classes, consider that there has been no measured period in the U.S. stock market over 25 years where anything has earned a higher return than stocks.

Gauge your investment knowledge by asking yourself a few simple questions. Have you ever done a full fundamental analysis of a stock prior to purchasing it? Do you understand the basics of asset allocation and diversification? Do you understand the nature of fixed-income products?

Know What You Have

Beware of what you have. Start with the most recent statements from any investments or plans you currently have. Also, determine what percentage you have in stocks versus bonds and cash. Then, decide how much time you wish to spend on your personal investing.

The goal here is to come up with an actual number in terms of hours per week. The higher the ratio of individual stocks to funds that you hold, the greater the time commitment will be. If you feel that you can devote four to five hours per week to research, you can aim toward owning a few individual stocks in your portfolio.

Assess Your Informational Sources

You don’t need to subscribe to expensive data services to find the data you need to conduct stock analysis. You can find publicly available information easily using free internet sources – earnings reports, press releases. Any reputable website will tell you where its data is coming from. Any website will also tell you how often it’s being updated, so you can feel confident that your information is current and accurate.

Draw up a Strategy

There are many advantages to creating a base asset allocation with mutual funds or exchange traded funds (ETFs). This can take a lot of the pressure off of you. With these investments, you don’t have to select every holding in your portfolio. Decide what area of the market interests you the most, whether it is a specific sector/industry or an asset class, and gain the experience of managing this portion of your portfolio more directly.

Look up a general market index like the S&P 500 and review the sector breakdown. It would be wise to not diverge too much from these sector weightings in your own portfolio. If you have 60% of your money in technology stocks when they represent only 15% of the S&P, you have a dangerous over-allocation of resources – even for the most skillful of investors.

It’s a good idea to keep a “watch list” of stocks that you have researched and found some interest in. It may be a company you really like that currently is valued fully, or a small company that you’d like to keep an eye on. Review this list weekly for any material changes. When selling a stock out of your portfolio, this will become a natural place to begin looking for a replacement.

Re-Assess and Adjust Your Strategy

Pick a schedule for assessing your progress. This isn’t so much about seeing how your returns stack up to some benchmark as it is a chance to review your overall asset allocation and your learning progress. If your ratio of stocks to bonds has changed significantly, you’ll want to bring it back into balance.

When reviewing your individual stock holdings, look over the fundamentals again to make sure nothing has changed significantly. If you feel on top of things and want to increase the percentage of your holdings that you manage directly, you can do so knowing that you are re-allocating thoughtfully and prudently. Also, understand that this means your hourly time commitment will increase.

Finance and management planning as a concept.


You always will be learning. It won’t be long before you are making major strides in your understanding of finances. You should be able to tackle mutual funds, or other vehicles, with confidence. Time spent on learning more about investing, whether in stocks or not, always pays a hefty dividend. Once you have a plan, stick with it. That is the key to investing success.

See Also: Dividend Reinvestment Plan: Important Things Every Investor Should Know

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