Investment planning is the process of aligning your investments to your goals and your risk profile. By analyzing your risk profile, you can understand your true potential in investing
Here’s how you can arrive at your true potential in investing
You look for Strengths, Weaknesses, Opportunities and Threats (SWOT):
In investment planning, your strengths are your income level, job profile and how early you have started investing.
Your weaknesses can be your liabilities and the number of dependents in the family.
You can find opportunities in terms of reducing your expenses to the minimum.
Finally, your investments may face threats from uncertainties like inflation, job loss, theft and medical emergencies.
This SWOT analysis of your investment potential is the barometer for your risk appetite.
List Your SMART Goals
Investment planning is all about you and your goals. You invest your money to fulfill your goals, dreams and aspirations for the future. While at it, you should also ensure that your goals are SMART (Specific, Measurable, Achievable, Relevant and Time-bound). Otherwise, your plans may be vague or wishes that will be difficult to achieve.
Another way to reach your goals quickly is to classify your goals as short-term, medium-term and long-term.
Short-term goals have a time horizon of up to three years. Examples of short-term goals are home renovation, buying a two-wheeler and jewellery
Medium-term goals have a horizon of three to five years. Medium-term goals may be goals like going on an international vacation with family or buying a new car
Long-term goals are those for which you have five years and more. They may be your child’s higher education, retirement corpus, or buying a second home
Once you have listed down these goals, make sure you are calculating their actual value. Your goal’s real value is its current value plus inflation.
Cover Potential Medical Threats With Insurance
By purchasing adequate insurance cover, you can protect your finances from the potential havoc some liabilities can wreak.
Here are a few popular insurance products to consider:
Term life insurance: Term life insurance covers your dependent family members in the event of an unfortunate incident, such as death, caused by lifestyle diseases and complications.
Health insurance: Health insurance covers your hospital bills and daycare procedures and offers cashless hospitalizations at network hospitals. It provides financial protection for you and your family in the face of rising medical costs and uncertainties.
Critical illness cover: Critical illness cover complements your health insurance, providing a lump sum for diagnosed acute illnesses like cancer or stroke. It adds to your financial protection, covering expenses not included in basic health insurance, such as income loss.
Know Your Risk Appetite
Aligning your risk appetite with your investment planning is crucial. It measures the suitable level of risk for you. Considering growth prospects and risks is essential when evaluating big or small investment planning avenues, as all investments are subject to market risks.
Understand Markets
Markets rarely follow a straight and steady growth pattern. They tend to be erratic, unpredictable and volatile in their movements in the short term.
This is because the emotions and outlook of investors drive markets. Those, in turn, are operated by uncertainties like local politics, geopolitics, natural calamities, weather, population demographics, economic outlook, exchange rates, wars, and inflation.
It’s better to be prepared to deal with the risk of short to medium-term loss that is caused due to market volatility.
How to Measure Risk Appetite
Your risk appetite is a measure of how much risk you can withstand. Ask yourself these questions:
Are you prepared to deal with short to medium-term risk while pursuing long-term gain from your investments?
How will you react if the value of your portfolio goes down by 30% within a short period? (This can happen in times of significant turmoil like the recent COVID-19 pandemic or the global financial crisis of 2008)
Match Investments to Goals and Risk Profile
If you tend to gravitate towards the risk-averse side, you can have more debt and gold mutual funds in your portfolio. You can even consider index funds that are less volatile if you have a medium-term goal.
If you have a high-risk appetite and are planning long-term financial goals, you may allocate more to equity-based mutual funds that are more volatile.
Do Your Research
Be confident in your investment decisions, as they are ultimately for you. You need to put in the time and effort required to research the pros and cons of every investment decision you make. Start your investment plan by choosing the right mutual fund.
CONCLUSION
Investment is important to achieve individual goals. Investment means we have money, then weneed to make analysis to invest the money, and expected to get return in future.
If the investment are run early, then we will make a lot of profit if the investment run well, if not we will lose all of the investment need to start from earlier.
Apart from that, first thing first we must set an investment plan to make the investment run well. From that, we can know what we will face in future, what the risk needs counter, what economy is going and many more.
As we also know, there are also specific places for investment to be done. It will involve capital market, Bursa Malaysia, equity market, debt market and many more.
So, we need to know where we should invest our money whether to invest in high risk market or lower risk market to gain return in future.