A step-by-step guide to creating your investment plan

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TABLE OF CONTENTS

Introduction

Investing is something that everybody wants to get started with - if they haven't already done so. With financial awareness rising among the average retail investor, this is only to be expected.

In fact, if you've been keeping up with your social media feed, chances are, you too may have come across stories of many people waking up to the importance of investments following the uncertain couple of years we've all had recently.

However, investing is not something that you can just get started with overnight. You need an investment plan to guide you, so your money is invested in a way that is right for you. In other words, you cannot invest without creating an investment plan. 

Before we delve into how you can come with a plan that is right for you, let's take a look at the fundamentals and decode what investment planning is all about. 

What is investment planning?

In the simplest of terms, investment planning is the process of deciding what assets to invest in and how much to invest in each asset, based on your financial goals. This kind of an investment guide is essential because the investment options available today each come with their own distinct features.

Some investment options may be better suited for the long term, while others are ideal for the short term. And some options may carry a higher level of risk than others. Similarly, your financial goals are also bound to be different from one another. Some goals may require more funds than others. 

They may also differ in terms of the investment horizon. Additionally, you can afford to take on a higher risk in case of some goals than others, depending on the time you have to achieve them and on how non-negotiable they may be. 

An investment plan helps you identify the right investment options for your life goals. And it helps you figure out how much you should invest in each of the chosen options.

A step-by-step guide to creating your investment plan

Now that we have decoded what investment planning is all about, let's take a closer look at the key steps you need to follow to create your own investment guide.

  • Assess your current situation

    The first step is analyzing your current financial situation. You can get started by drawing up a budget to compare your income and your current non-negotiable expenses. This will help you get a better idea of how much disposable income you have.

    For example, say you earn Rs. 50,000 a month, and your essential expenses come up to Rs. 20,000 each month. This leaves you with a disposable income of Rs. 30,000. Some portion of this will naturally be used for your discretionary spends. But you can redirect a sizable amount of your disposable income towards investments.

  • Determine your financial goal

    Once you have a fair idea of your current financial situation, you need to identify your financial goals. After all, they are the reasons for your investments in the first place, aren't they? List out your financial goals and for each item on the list, ensure that you define the following:

    • The time period within which you wish to achieve that goal
    • The amount of funds needed to achieve that goal
    • Whether the goal is essential or negotiable

    This kind of exercise helps you get a better idea of the amount of funds you need to achieve your goals and the time horizon for each goal. Additionally, it also helps you prioritize your goals on the basis of their necessity.

  • Understand your risk profile

    Every investor is different. Some may be willing to take on a higher level of risk, while others may prefer to invest in safer options. Your investment plan will depend greatly on your risk profile. And your risk profile consists of the following three aspects:

    • Your risk appetite:
      This is the amount of risk that you are willing or ready to take on.
    • Your risk capacity:
      This is the amount of risk that you are capable of taking on, based on your financial situation.
    • Your risk capacity:
      This is the amount of risk that you should take in order to reach your financial goals.
  • Select investment avenues

    After assessing what your risk profile is, the next step in your investment guide is all about deciding what to invest in. There are different investment options that you can choose from, based on your current financial situation, your financial goals and your risk profile.

    For example, if you are a risk-averse investor, you can choose safer investment options like a fixed deposit and the Public Provident Fund (PPF). On the other hand, if you want to increase the risk exposure in your portfolio, you can choose high-risk investments like direct equity or equity mutual funds.

    Apart from the investment options you choose, your portfolio must also include life insurance to protect yourself and your family in case of unforeseen developments. This too can be aligned with your risk profile.

    If your primary goal is saving up with guaranteed benefits, you can choose a savings plan. On the other hand, if you want to combine insurance with market-linked investments, you can choose a Unit Linked Insurance Plan (ULIP).

    Asset allocation is also a key part of this phase. This is essentially how much you wish to invest in each of the chosen avenues. 

  • Monitor and rebalance

    Lastly, after you have chosen the investment options and decided how much to invest in them, you may perhaps finally sit back and relax. However, this respite is only for a short while, because you need to constantly monitor and track your investment portfolio.

    And if your initial asset allocation is disrupted, you need to rebalance your portfolio. Portfolio rebalancing is a key part of any investment plan. And it must be done once every six months or once a year.

    For instance, say you have Rs. 1 lakh to invest today, and you wish to initially invest in equity and debt in the ratio of 70:30. In that case, your initial asset allocation will be as follows:

    • Rs. 70,000 in equity
    • Rs. 30,000 in debt

    One year later, if the equity markets perform well, your investment value may alter as follows.

    • Rs. 1,00,000 in equity
    • Rs. 50,000 in debt

    In that case, you will have to rebalance your portfolio to achieve the original 70:30 allocation, as follows.

    • Rs. 1,05,000 in equity
    • Rs. 45,000 in debt

Conclusion

This sums up the fundamentals of creating your investment plan. Keep in mind that this is simply an investment guide to help you get started. You can always customize it to meet your unique requirements. And if you are in doubt, a financial expert is just a call or a meeting away. Make sure you get your queries sorted out before taking a financial decision.

Read next: How does financial planning change with age?

Creating your investment plan is only one half of the picture. Your plan also needs to keep pace with your changing needs and goals as you age. Want to know more about how financial planning changes with age? It turns out we have a blog that explores this very subject. You can get all the information you need from there.

Read it here

A BIG PART OF INVESTMENT PLANNING IS SETTING UP A SOURCE OF SECONDARY INCOME.

This becomes easier with a life insurance plan like the ABSLI Assured Income Plus Plan. With just one policy, you can check off two key areas in your investment plan - namely life insurance and additional income.

This insurance plan gives you both these benefits. The guaranteed1 life cover protects your family, while the income benefit can be used to either supplement or replace your primary income.

By investing for just a short period of time, you can earn consistent and regular income over a period of 20, 25 or even 30 years. Plus, you also get loyalty additions over the long term!

Know More

1 Provided all due premiums are paid
ABSLI Assured Income Plus (UIN: 109N127V05) is a non-linked non-participating individual life insurance savings plan.
IN ULIP POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
ADV/3/21-22/2521

Author

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