We live in a world of economic uncertainty and inflation where it’s normal for people to seek other income sources that generate significant revenue over time without needing a job. Formally known as investments, the term comes with many options and opportunities for individuals and businesses looking forward to financial growth.
With so many options comes the opportunity — and confusion about the type of investment to opt for. We have curated a complete investment planning guide covering the benefits, types, and examples to help you choose the right option.
So, without further ado, let’s begin.
What is an Investment Plan?
Before hopping on the plan, you need to know what an investment plan is. An investment strategy is a set of principles and rules to help an investor meet their investment goals and reach the financial peak.
Most people hire a fiduciary financial planner to understand their finances better and suggest options that work for the benefit of their clients. An investment plan is customized to each person and is based on things like assets under your name, current source of income, risk tolerance, liquidity, and taxes.
Investors create a customized strategy to build a portfolio that leads to financial appreciation.
What Are the Benefits of Having an Investment Strategy?
Investing your money is a great deal which means you need to be mentally prepared in advance and have a solid plan in place to ensure the money is being invested in the right venture.
Here are the perks of having an investment strategy in place:
Better Risk Management
An investment strategy enables investors to understand the types of investments and what can be the consequences of putting your money in a particular venture. It prevents you from making any impulsive and irrational decisions that can damage your financial health in the longer run.
Long-Term Security
A well-thought-out investment plan provides you with a long-term perspective on how your assets will be utilized. For example, people feel secure after putting their money in long-term and low-risk investments.
Achieving Financial Goals
If you play your cards properly, an investment plan can be quite useful in reaching economic well-being. A strategy regarding what to invest and where will help you invest in profitable options, make necessary customizations and yield capital appreciation.
Investment Strategies
There are different investment strategies available for investors to increase their wealth. We have the short-term investments in which you get quicker returns or the long-term, less liquid investments that are profitable with time.
Here are the two main types of investment strategies:
Short-Term Investments
A short-term investment yields results in a short time. You put in a certain amount and get an expected return much quicker than other investments. Short-term investments are mostly opted by individuals rather than businesses. You can choose a short-term investment strategy for financing upcoming projects, saving for an event or any asset for your house or business. Some examples of a short-term investments are:
- Stocks
- Bonds
- Savings accounts
- Cash management accounts
- Treasury bills
Long-Term Investments
Long-term investment is suitable for people who want to receive a return after a fixed amount of time. A long-term investments are assets that you can hold between seven to ten years and are usually profitable in the longer run. Since they take time to yield a return, long-term investments are usually safe and less risky. Individuals looking to protect their assets opt for long-term investments. Some examples are:
- Growth stocks
- Bond funds
- Dividend stocks
- Real estate
- Monetary instruments and collectibles
Nature of Investment Strategies
Understanding the nature of your investment is incredibly important before putting your money in. The nature of investment also helps investors make well-informed decisions and ensures that you are putting money in the right place.
Active Investment Plans
The investor considers active investments as their full-time work. You will be regularly involved in the investment projects and in building your portfolio. Active investment strategies are mostly taken on by the investor himself without the need for any financial planner. Most active investors have no other careers and focus full-time on investing. Some common types of active investment plans are hedge funds, stock picking, options trading, currency trading, forex trading, private equity, active bond management.
Passive Investment Plans
Passive investment plans are a side income source in which the investor mainly relies on the decisions of its financial/fiduciary planner. Passive investment strategies might take the same research time as an active investment strategy but the investor does not need to be involved in the daily updates and status of their capital amount. Most people use passive investment strategies to build an emergency fund or save for retirement. Some common examples of passive investments are index funds, exchange-traded funds (ETFs), real estate investments, and smart beta ETFs.
High-Risk Investment Plans
High-risk investment plans are mainly opted by individuals who are young and have the tolerance to put their money in a risky investment for a higher return. High-risk investments are more suited to people who have the capability of financially recovering from any chances of loss. Examples of high-risk investments are stocks of new companies, high-yield bonds, private equity, leveraged ETFs, and forex trading.
Low-Risk Investments
Individuals who want to earn a certain profit without taking any risks are called low-risk investments. These options pretty much guarantee a return without hampering your initial capital. Low-risk investments are a safeguard attempt for people who cannot take a lot of risks in their life. Examples of low-risk investments are savings accounts, certificates of deposits, blue chip stocks, index funds, municipal bonds, and real estate investments.
Final Thoughts
Investments are a great way to generate stable income and preserve finances without taking a job. Investment planning is a great way to put your money in the capital that yields a profitable return. There are different types of investment strategies that you can choose from. Long-term strategies are less riskier but can be profitable in the long run. Similarly, there are short-term and risky investments for people who can recover from a loss.
The investment plan you choose depends on your financial health but it’s ideal to discuss the plan with your financial or fiduciary planner before making a decision.
If you liked reading this write up, I have also recently written about effective financial planning for students and investment options with least liquidity.
