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Investing Your Money

Updated on February 17, 2016

Setting Goals and Planning for Investment

Investment success is a combination of luck, research, knowledge, and commitment. The most important aspects of investment are: understanding the different vehicles of investments available, history of return on those investments, the present and future value of money, and the risk associated to each investment. But prior to researching how to invest, a goal is needed first.

When it comes to retirement planning, mitigating risk is an important factor in financial success. To mitigate risk, an investor must start by looking at his own current financial income and expenses. He must determine what amounts he can save for investment. Upon budgeting his expenses and savings, he must then determine from the excess funds for investment, how much risk he is able to tolerate when investing. This can help him understand his investment personality and needs.

Any plan starts with a goal. Investment goals should include an assessed future value of the funds, cash flows expected, the desired rate of return, rate of loss that he can afford and a lot of education. Education on many areas is needed to mitigate risk. The first step is researching the different types of investment vehicles and their success. The next step, upon locating the securities, is researching the companies or funds extensively. By researching history of the security, its value, a prospectus he can use that to determine the future value. In addition, he can research the company/funder itself, and review length of time it has been public, its earnings statements, type of industry, and more. In turn, he can get a better understanding of the strength and prognosis of his chosen investments.

Upon selecting and investing in the thoroughly researched security; monitoring and management of his portfolio is key to controlling and forecasting the success of the vehicle. A vehicle that combines securities from several companies can also assist in mitigating risk, because if one of 30 companies in a fund has a bad year, the investor doesn’t see such an impact on the overall fund.

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Target Dates and Risk Tolerance

After reviewing investment vehicles and options, an investor needs to establish target date for retirement age in order to develop his Investment Plan. Then, he should determine his risk-tolerance before choosing investment vehicles. As an investor, I am at moderate-risk tolerance for my age. Because I am young and investing, I am using time wisely, as I have many years to invest and maximize my return (Wachovia, 2011). After establishing risk-tolerance, an investor should choose a balanced and diverse portfolio to maximize return, and mitigate loss (Motley Fool Staff, 2011). Diversity is most important when reviewing securities to invest in to create a portfolio. Mixing assets between many securities is key when choosing companies to invest in. Diversifying types of investments and diversifying sectors can mitigate risk and compartmentalize any losses to one type of security, or one sector, lessening the monetary loss. However, mitigating risk involves analyzing company histories, reviewing prospectus, and spending a lot of time researching. It is important to have a knowledgeable person to assist in a novice investor’s endeavors to ensure he makes the right choices. Therefore, as part of a retirement plan, I would ensure at this point to choose a good broker to assist me.

Retirement Income Planner

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Retirement Income

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Portfolio Management

Upon setting goals, getting a general idea of the types of investments an investor wants and is comfortable with, he should focus on Portfolio Management. I would choose an Individual lifecycle approach and assess my risk, goals, and taxes. I would discuss with my broker my preferences with risk, required rate of return (RRR), my liquidity, timeline, and unique constraints (Wachovia, 2011).

After an investor’s expectations are set a strategy should be devised on investing. Strategies include the type of investing, the process for reviewing and monitoring it, rebalancing portfolios as needed, and adjusting investments as life changes. My strategy is a passive strategy that has a moderate risk tolerance. I would choose preferred stocks, high-grade bonds, target-date mutual funds, retirement-specific mutual funds, futures, and options.

To determine if my current investments would meet my successful retirement date of age 65, I visited a Retirement Income Planner Tool on Fidelity’s website. I found that my current investments will yield my desired annual income upon retirement. This is a beneficial tool to use to determine if an investor is on the right track. Now that I have more knowledge regarding the diversity of investment vehicles, I can increase the miscellany of my portfolio to maximize my return.

In addition to tracking my potential future retirement income, the retirement planning tool with fidelity also provides suggestions for the balancing of my port

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Estate Planning

After a strategy is implemented to manage an investor’s portfolio for retirement investment, he should ensure that he maximizes the funds left in excess when he dies. I have a will that currently names beneficiaries and my executor, but I also need a revocable trust to use for my gains to minimize taxes paid upon death, in addition, so my family will not have to spend funds from my estate, or from their own pockets, life insurance is something I will purchase and use as part of my investment strategy for retirement.

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Conclusion

In the end, investing is a game of strategy and finger-crossing. Understanding the cost of risk, trade-off for the risk, and the commitment to take risk, is the key to making profit. A good investor will thoroughly research each vehicle and make his own determination whether to purchase to minimize his risk of loss. He will then develop and implement a strategy, and re-balance his portfolio as necessary to maximize his return. Like Legendary Investing Guru Warren Buffet said “Price is what you pay, value is what you get, and risk comes from not knowing what you’re doing” (Investment School, 2011).

References

Fidelity. (2011). Retirement Income Planner. Retrieved August 25, 2011, from Fidelity: https://incomeplanner.fidelity.com/planner/action/actionPlan.jhtml

Investment School. (2011). 52 Must Read Quotes from Legendary Investor – Warren Buffett. Retrieved July 13, 2011, from Investment School: http://investing-school.com/history/52-must-read-quotes-from-legendary-investor-warren-buffett/

Motley Fool Staff. (2011). How to Invest 101. Retrieved August 25, 2011, from Motley Fool: http://www.fool.com/investing/beginning/why-should-i-invest.aspx?source=ih2sitlnk0000001

Wachovia. (2011). Investing. Retrieved August 25, 2011, from Wachovia, a Wells Fargo Company: https://www.wachovia.com/foundation/v/index.jsp?vgnextoid=60f6fbfaba0aa110VgnVCM1000004b0d1872RCRD

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    • Say Yes To Life profile image

      Yoleen Lucas 14 months ago from Big Island of Hawaii

      Vital information, here! I would like to add that investing in individual stock is best done by people who have taken stockbroker courses and understand how to assess companies and stocks, since it is necessary to buy low and sell high. Those who have not taken those courses should invest in mutual funds, which is a collection of stocks. They are managed by experts, who do the buying, selling, and trading. The returns are lower, but so are the risks.

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