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Investment Planning

Investment Planning

What factors should investors consider in their investment planning process?

Investors should review their portfolios regularly to ensure their financial needs and investment objectives are aligned.

Investors should consider the following points when buying/switching funds or re-balancing their portfolios.

Set an investment objective:
Before making any investment decision, the first step is to set an investment objective. It could be savings for further education, getting married, making a down payment for an apartment, children’s education or for retirement.

Different life stages can affect an investment plan. It is important for investors to consider their investment objectives vs. the risk they can take, in particular on the followings:

(1) Investors should consider their age and the associated risks of the product. For example, it may be inappropriate for an investor approaching retirement age to invest in high-risk products as this typically represents a mismatch between risk tolerance level and investment horizon.

(2) Investors should be very clear about their investment objectives when considering switching funds because their investment horizon (i.e. 1 year, 3 years or longer) and the type of funds they choose can be directly affected.

Generally speaking, under normal market situation, long-term investment (especially those who invest in a diversified portfolio) can ride out short term market volatilities.

However, investors should be aware that longer investment horizon may imply more variables in the market, investors should therefore review their portfolios regularly and carefully evaluate whether the funds they are switching into match their investment objectives.

(3) Investors should consider their cash flow before any investment decision is made. Investors should assess their cash liquidity and reserve a necessary amount for any emergency purposes.

The importance of diversification:
It is vital for investors to diversify their portfolio by investing across markets, sectors or geographical regions to reduce risk.

Funds generally invest in a basket of holdings which can help diversify risk, but investing in a single sector fund can be riskier.

Investors can also invest across different asset classes such as stocks, bonds,Annuities or mixed-assets to further diversify their portfolios as the risk profiles of different asset classes vary.

Consistency of risks and investment objectives:
In general, the higher the risk of an investment product, the higher the potential return, and vice versa. Investors should strike a balance between risk and return and fully understand the worst case scenario e.g. losing their entire investment capital.

Consider the above carefully before investing in or switching funds, especially in volatile markets when investors are becoming more irrational.

Here are 10 Basic steps to Investment Planning:

Step 1 - Develop your personal investment and financial planning skills.

Step 2 - Set your personal savings, earned income, and other financial planning goals.

Step 3 - Assess your personal investment return and risk tolerance preferences.

Step 4 - Diversify fully within financial investment asset classes.

Step 5 - Allocate financial investments across the primary investment asset classes.

Step 6 - Select financial investments rationally.

Step 7 - Reduce investment expenses and control investment taxation.
 
Step 8 - Insure against financial risks economically.

Step 9 - Monitor and adjust your financial plan time-efficiently.

Step 10 - Choose objective and competent investment advisers.

Pick financial planning and investment advisors solely to obtain objective and high quality advice.

Specific investment advice is potentially of high quality, if it is carefully customized to your particular needs and is given by an adviser who is independent, knowledgeable, and competent.

If you agree with the advice being given, then buy the recommended securities through the most inexpensive channel possible.

In developing a plan part of your focus will be focusing on appropriate financial products and services both easily and economically that fit your investment needs.
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