How to make an investment plan that works for you

3 mins readLast updated October 4, 2023by Rachel Carey

Your tailor-made investment plan starts with a few fundamentals: knowing your budget and appetite for risk, your timescales, what your goals are, and what you’d like to invest in.

Before you start investing your hard-earned money, you need to set out a plan: your course of action. The key elements are risk, time, life goals, and the type of investments you should think about based on these points. Getting your finances organized and your aims clear is the way to begin. Here we explore the steps.

What are your investment goals?

Here’s where to start. Think about, and write down, your life goals, both short and long-term, making sure they’re realistic. Your goals need to be steps you can really take, not just ideals.

What do you want your money to achieve? A secure retirement, the down payment on a home, maybe a new car? Whatever’s most important for you and your family takes precedence.

It can help to think of your goals in terms of a route or journey. Move one step at a time and determine short-term, medium-term, and long-term goals – less than a year, one to five years, and over five years.

What is your appetite for risk?

It’s really easy to get excited about how much you might make from an investment, but it’s vital to keep a balanced view and also think about how much you could afford to lose. Just what is your risk capacity?

Markets always go up and down, and most investments involve a degree of risk, so you need to know how you feel about that. Being honest and objective will help you decide whether you want to invest conservatively, moderately, or aggressively.

It’s an age-old truth that investments with the greatest return potential usually carry the greatest risk.

What about your timeframes?

Time is a key factor in your investment plan. Generally speaking, the further you are away from reaching your goal deadline, the more risk you can take. Why? Giving your investments more time allows them to grow during ups and recover from downs. As you get closer to your pre-set deadline for realizing a goal, it makes more sense to take less risk and protect against losses.

The best type of investments for short-term and long-term goals

Here are some basic tips on timing and your investments, based on when you would need to access your money.

  • Under three years – Avoid stocks as they’re volatile. Think about cash investments, money market funds, or CDs (certificates of deposit).

  • Three to five years – You might want to think about stocks, but stick to bonds and cash equivalents in the main, as you don’t have that much time to recover from losses.

  • Six years plus – With this much time on your side, you can afford to put half or more of your money into stocks, provided you’re comfortable with the risk level.

What would you like to invest in?

It’s time for the final step – starting your investment portfolio.

Your budget, goals, appetite for risk, and timing horizon will help shape a personalized investment plan. Take a look at securities such as stocks, bonds, and mutual funds, longer-term options like 401(k) plans and IRAs, bank account savings, and Certificates of Deposits (CDs).

Whatever you decide on, remember that a diverse portfolio is a safer bet, with a good spread of assets. If the market crashed and you had everything in stocks, you’d lose the lot.

What about monitoring and rebalancing?

Creating your investment plan is just the start.

Now and again, you should check on your investments and see how they’re performing – here you can decide if they need rebalancing and start making changes. This might involve upping the amount you put in monthly or even holding back a little. Perhaps you need to move some funds into something more secure, or perhaps it’s time to up the risk factor a touch. It’s all about staying true to your goals, as circumstances and markets change.

When you’re deciding exactly what to invest in – or rebalancing further down the line – a financial advisor can be a real asset. They will understand your financial position and capacity for risk and can help you realize your goals without drama.

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.