A Solid Investment Plan
One very important component to investment planning is to learn how to become a saver. If you can not do 10 percent of your income right away, then start small with a 1 percent contribution to your 401 K.
Gradually, as your conditions allow, increase this amount to 10 percent, If you can push past the 10 percent mark and you’re still young, you may afford yourself the opportunity to retire early.
When you take the next step from saving to investing, clearly define what your goals are. Know yourself and know what degree of risk you’re willing to take. If the stock market is too risky for your demeanor, then money market investments may be the best option for you.
If you have some risk tolerance, you may want to put 20 percent into the market and the remainder diversified into more conservative investments. If you go past your risk tolerance, you may give up and change your strategy too readily.
When deciding where to invest your assets, consider not only the return on investment, but the risk factors involved. The asset classes are as follows, starting with the safest to the most risky.
The first asset class is the cash or money market, which includes T-bills, certificates of deposit and commercial paper. Next in asset classes comes bonds, which are also called fixed income. Bonds may be short term, intermediate or longer.
Be wary of junk bonds as they are high risk.
Next in asset classes are the domestic equities, which includes S + P 500 and the companies of the New York Stock Exchange. The last equity asset class is the international large companies and small companies.
When building and keeping an investment portfolio, keep in mind that you are investing for the long term goal.
Remember the principle of the higher the expected rate of return, the higher the risk. Diversify your portfolio according to your unique goals and clarify where you need to be for retirement years.
