As you move into 2022, consider starting the new year with an “Investment Plan” Resolution.

Make this the year you get really clear on your financial goals and once they are in place, create a workable investment plan to help you achieve them.

This article covers the basics, followed by 3 areas to consider when putting together your investment plan:

  1. The Basics
  2. Investment Options
  3. Attitude To Risk
  4. Investment Term

1) The Basics

Before you can get started on your plan, you need to make sure you have the basics covered first:

Financial Plan - The Basics
  • Review Your Income & Expenditure

    You need to understand what surplus you have available to invest, once you have paid all your regular bills.

    If you haven’t completed this exercise recently, take a look at this article: “How To Start Planning For The Future Financially”

  • Establish an Emergency Fund

    No-one can predict what life has in store for us next, the events of 2020/21 have been a very clear demonstration of this. So it is important to establish a financial safety net. Ideally, you should have enough saved to cover at least 6 months of your outgoings and be able to access these funds relatively quickly.

Remember, an unwritten goal is just a wish!

2) Investment Plan Options

An important part of investment planning is selecting assets you are comfortable with. Your portfolio should include a mix of investments to not only help protect against unexpected economic situations and market fluctuations, but to also ensure you are able to meet any short term cash needs without affecting your long term growth plans.

Remember, your choices are not set in stone and it’s a good idea to review your plan from time to time to ensure they are still aligned with your goals.

There are 4 main types of investments (also known as asset classes) to potentially choose from as follows:

  • Cash Investments – putting money into a bank or building society

  • Shares – buying a stake in a company

  • Property – investing in physical buildings (commercial or residential)

  • Fixed Interest Securities (also called bonds) – lending money to the Government or a Company

investing is a lifelong process

How much you decide to invest in each ‘asset class’ will depend on your attitude to risk, your current financial position / time of life and your future goals.

The returns you then get will depend on where you put your money e.g dividends from shares, rent from properties etc.

3) Attitude To Risk

How much of a risk taker are you?

Ultimately, there is no such thing as a ‘no risk’ investment.  Even an asset such as a general ‘savings account’ falls into the low risk category, as the interest received may not keep up with inflation, resulting in a loss of value in ‘real terms’ (buying power).

Risk means different things to different people. Your individual circumstances, personality, goals and timescales will all contribute to your ‘risk profile’.

Consider:

  • Captial Risk

    For example, if you buy a property or company shares, the value of the ‘asset’ you invest in can go down instead of up, meaning you may not get back the full amount you invested.

  • Inflation Risk

    Even if your ‘asset’ increases in value, if this increase is less than the rate of inflation, your purchasing power should you liquidate your asset will have declined.

  • Liquidity Risk

    If you need to quickly convert an asset into cash, sometimes you cannot do so without giving up capital and income due to a lack of buyers. E.g selling a property.

  • Currency Risk

    Exchange rates are constently fluctuating, with variable buy and sell rates. It is easy to lose money where transactions involve different currencies.

  • Interest Rate Risk

    Changes to interest rates affct your returns on savings and investments. Interest rate risk is a particular risk for bondholders.

One of the ways to reduce risk over the long term is to save in regular amounts, which can include drip-feeding a lump sum investment by breaking it down into smaller chunks.

This is known as ‘Pound Cost Averaging’.

Find out more

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3) Investment Term

How long should you invest for?

Your financial situation and future goals will influence the answer to this question, and typically you will have different strategies for your different investments.

Need Help?

Before you buy or sell any investments, it’s worth seeking professional advice. Discussing any concerns with an advisor will help remove your emotions from the decision making process and ensure your financial planning strategy remains on track.

When it comes to building an investment plan, there are many areas to explore. If you would like to book a free 30 minute initial chat, please click the button below, or contact Tony Thomas on 07585 592494 or tony@ttwealth.co.uk

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