6 things you need to know for your investment plan.

planning bigkidlittleadult

The vehicle to financial independence seems to be investing. So it makes sense that we should have an investment plan. A road map for the future, if you will. After months and months of reading, I finally felt ready to sit down and plan one. You might even think it’s a little backwards, but if I had sat down to do an investment plan before the time spent educating myself, I would have had nothing to show for it!

I thought I’d share a few things that I learnt while building my investment plan.

1. You need to know why you are investing.

Is it so you can retire early? Or are you investing so you can build up a deposit to buy a house? Having clear reasons and goals for investing can help shape your plan and give you the road signs needed to get to your destination.

For me, I want to invest because I want to achieve financial independence and be able to travel without worrying where my next meal or plane ticket is going to come from. I want to invest because I want to future-proof my family. When we are finally blessed with a child, I want to be able to take time off to spend with my child without having to worry about the financial side of things.

2. You need to know the destination of your journey.

Not quite the same as point number 1. This is more related to figures and numbers. For instance, I know that I want to eventually be able to achieve an income from dividends and passive income streams that is comparable to the salary that I am receiving right now. That gives me a destination in mind and I can backward engineer my plan from that. Bearing in mind that this is the ultimate goal, you can then break it down into more manageable chunks. For myself, my very lofty goal is at the end of a 30-40 year journey. I broke it all down into chunks and after working it all out, my 3 year investment plan will hopefully result in a $100,100 portfolio with a return of about $4k.

3. You need to know how much you can invest.

Having a destination is great, but if you cannot find the means upon which to reach your destination then it’s all for naught. Hopefully you already track your monthly expenses, but if you aren’t doing that, you need to start! A simple spreadsheet will suffice, though there are many apps and personal finance software that can help with that and make pretty graphs. Personally, I use a plain ol’ excel spreadsheet that my husband juiced up for me so it is able to do exactly what I want. Knowing the figures helped me flesh out my goals and build the vehicle upon which I get to my destination. I know that by setting aside $3000 a month, I will be able to allocate the money according to my investment plan to achieve my goals.

4. You need to know your risk appetite and risk tolerance.

How averse are you towards taking risks with your money? Can you ride out the highs and the lows, and not engage in panic selling? Your risk tolerance will provide a rough road map for your investments. Very broadly, there are 3 types of investors: aggressive, moderate risk and conservative investors. Seeing as I am on the younger side of my life and with the anticipation of still being physically capable to work for another 30-40 years, I can afford to be more aggressive and ride out the bumps and lumps in the road. Still, for the first 3 years of my investment life I have opted to concentrate on increasing my cash holding to 25% of my entire portfolio with the view of changing that once I reach a comfortable threshold of 3 – 6 months living expenditure.

5. You need to work out your asset allocation.

Warning: This requires lots and lots of reading! It’s impossible to pluck this know-how out of the air. You need to read and educate yourself in order to make a decision on the mix of investments you’d like to use. There are a myriad of ways to invest out there like cryptocurrency, day trading, exchange traded funds, precious metal, real estate etc. You need to have a diversified portfolio, so don’t put all your eggs into the same basket. I found this article on asset allocation really useful when I needed a bit more guidance upon which to base my plan. Based on my wants to increase my cash holdings, this is the split of assets that I came up with:

ideal portfolio

Wherein others stand for P2P loans (Ratesetter) and perhaps any other fancy fintech investment methods that I may come across in the next 3 years. This allows me some flexibility in which to play in this exciting space. Properties would be in the form of Brickx and potentially REITs, there are definitely no plans on an investment property. How different my thinking is now that I am actually looking at investing seriously vs. when I was dreaming!

6. You need to have patience.

I made a 3 year plan that I really like the look of it and know that I can comfortably achieve it if I maintain my current savings rate and no big upheaval comes my way. I know what my end game looks like, and I know how to get there. The temptation is to rush things and buy in too quickly which will result in overstretching. Constant overstretching will result in a very strained relationship between me and my money, which will be a surefire way to abandon all plans and go back to spending money like water. So, tempting as it is to throw caution to the wind, I know that I must adopt a ‘think before I leap’ mentality. And you do, too.

I must admit to being very excited to see how the next 3 years pan out, and I am excited to put the wheels into motion on this vehicle. I looked back on the financial goals I wrote a month ago and was very pleased to see that my investment plan actually expanded upon those goals. At the time of writing that post, I knew what I wanted but not how I would get there. But now I know how I will get there, and in fact go further than that.

How about you? Do you have an investment plan? If so, what was the biggest thing you learnt when writing out your plan?

7 thoughts on “6 things you need to know for your investment plan.”

  1. Nice reminder here – everyone needs a strategy of what they are investing in and why. And to really understand the investments too.

    I wouldn’t personally invest in Cryptocurrencies or BrickX, but everyone is different. REIT’s are ok. I’m happy to get my exposure to them via our listed investment companies (LICs)-they usually have some REIT’s as part of their diversified portfolio.

    The biggest lesson I learnt was to focus on generating strong and growing income from your investments, and not depend on capital appreciation, which is far less reliable.

    1. Mm yes! I haven’t looked enough into REITs to decide how I want to go about them, so inevitably as my understanding grows, I believe a stronger decision will be made there. I don’t intend to invest big in crypto or Brickx. I don’t believe in relying on capital appreciation too, but I like the idea behind Brickx and a soft spot for innovative ideas that are different from the norm. The idea behind Brickx is intriguing and I actually don’t expect to see much of a return there at all. So in time, I will probably withdraw the money and invest somewhere else, but we’ll see. As for crypto, I decided to invest some in them because again I really like the idea and the technology behind it. I think it’s an exciting space and will just keep a little finger in the pie, just enough to keep an eye on things. There is great potential, but such a volatile market!

  2. Great post, Pia! This is a very timely reminder for us as we finally started planning our investment strategy. We do have a plan and we’re both excited about it.

    I agree the most with being patient and sticking to your plan. Sometimes I do get a bit impatient and I feel like I want to buy everything at the same time.

    I don’t think we’ll invest in crypto currency or BrickX but we’ll be trying Ratesetter too.

    It’ll be interesting to look back at this post in 3 years! Good luck (to us)!

    1. The husband is slowly coming over I think. He hasn’t shown much interest in finance / investing, but he is happy to listen to me talk, sometimes has an opinion and happy for me to carve out our future. He’s not quite excited about it as I am, but oh well!

      Yes, I’m with you – I want to go out there and buy everything now!! Definitely good luck to you and me both, I can’t wait till the next few years have passed in order to look back and see how far we have come.

  3. Your investment plan sounds eerily similar to mine! The same why, and the same goal!
    I’m leaning more heavily towards shares 75%, cash 20% and then 5% for exploring P2P lending (maybe ratesetter since I keep hearing so much about it).
    Best of luck to you! Keep us updated on how you go 😊

  4. Hello Pia,
    Great post. I think the six points you mentioned definitely are the few most people foraying into the world of investment could miss.
    Hope to see more from you in the future!

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