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Elements of Financial Planning

by Sharon Alderson, CFP, FDS

Your chances of success are heightened by clearly defined objectives and a strategy for reaching your goals. So to get the most for your money, you need a plan. But how should you go about formulating an investment plan?  The following steps will get you started

Establish goals: Consider why you want to build investment wealth.  Is it to accumulate money for retirement, to buy a house, to start a business, or for some other purpose? Determine how much money you need to realize those goals. Above all, make sure your expectations are realistic and specific.

Decide how much risk you can take: In the investment world, as a general rule, the higher the risk, the higher the potential return.  If you can tolerate risk, you could potentially experience greater investment growth – but you also increase your chances of fluctuations in the value of your investment.  Consider whether you have the psychological makeup to tolerate ups and downs in the financial markets.  If market movements are going to keep you up at night, that much risk is not a good thing for you and comfort is a very important aspect of any investment plan.

You also need to consider your age: You don’t want to take extra risk with money as you approach retirement.  At this time you should consider concentrating on capital preservation through more conservative investment strategies. Fixed income investments such as Government and Corporate Bonds, or Real Estate and mortgage funds fluctuate less than equities, and Guaranteed Investment Certificates and Segregated Funds offer a guarantee, but remember no or low risk equals lower returns. You should always maintain some equities investments to provide protection against inflation.

Establish your portfolio: Mutual funds are an excellent way to diversify among the three basic asset classes – cash, fixed income and equity.  As a rule, your portfolio should have a high proportion of equity investments to build wealth while you’re young; as it has been proven volatility is reduced over the long term.  No matter what your age or investment experience, make diversification, geographically as well as over the asset classes, a part of your investment plans.

Regularly review your plan: Once your strategy is in place, your plan should be  reviewed at least once a year, or more often as required by significant developments in financial  Once your strategy is in place, your plan should be  reviewed at least once a year, or more often as required by significant developments in financial markets or major lifestyle changes.  A good financial plan allows for the unexpected by utilizing an emergency fund and protecting your income and assets.  Making adjustments and re-balancing your portfolio back to its original asset allocation will greatly improve returns while keeping within your comfort level.

“Most Plans Fail Because Most People Fail to Plan”

Sharon Alderson CFP, FDS Investors Group Visit Sharon’s Blog at:

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