INVEST WITHOUT THE STRESS: THE IMPORTANCE OF A FINANCIAL PLAN

Investing may sound very simple and rewarding if you use your casual, everyday conversations with acquaintances who are in the field for quite some time as basis. However, in reality, investing may drain you not only physically and mentally, but also emotionally, as your decisions will determine your fund’s future. This is especially true if you are just starting out--you could be easily swayed by popular opinions and what you feel might be a good move. However, resorting to these can get you in difficult situations which may mean a loss of your hard-earned money, time, and effort.

In order to avoid starting off at the wrong foot when it comes to investing, it is important to create a financial plan to guide you in every circumstance you may encounter. But before you bring out those pens and scratch your heads, know that creating one entails more than just a single all-nighter. You need to take in several factors and build initial guides before you complete your financial plan.

Budget your finances

First step you need to do is lay out your available cash for investment and monitor it within a regular basis. Compare your results with your income and determine your biggest expenses. After this create an emergency fund to increase security and keep your investments in the long-term. Meanwhile, in case you have loans, the most important thing before you invest is to keep your debts manageable.

Familiarize yourself with risks involved

How high is your risk tolerance? You need to identify uncertainties you may encounter and how they affect a specific time or situation. Moreover, it is vital that you understand the relationship between a risk and you return, as they are part of the determinants of your profit. For example, some investments such as bank certificate of deposits poses no risks but has low interest fee.

Choose your account wisely

There are several types of investment accounts, so select the one parallel to your goals. If you are saving up for something in the long run like retirement, an IRA will be perfect for you. However, if you would like to be able to withdraw a bit of cash from time to time, taxable accounts might be more appropriate for you.

Learn the art of diversification and pick proper investments

The golden rule for this? Research. Go through analyst reports and determine which investments are suited for your account and will help you reach your targets. These should be in line with your risk and liquidity preferences. Also, practice diversification or branching out among several assets and sectors, especially since doing so also reduces risks during returns, despite their yearly cost.

Once you have completed the aforementioned factors, you can start building your financial plan. This way, you are more than ready had any unexpected shifts in the market or occur, instead of relying on your emotionally-driven decisions as you now have a concrete plan to look back at, helping you stick to your initial goal.