Investment Planning Definition

Investors need to identify the financial goals throughout life or for the next 10 to 15 years depending upon the time horizon selected by the investor, and prioritizing them. Investment Planning is important because it helps in deriving the maximum benefit from the investments.

Success as an investor depends upon his investment in right instrument in right time and for the right period. This, in turn, depends on the requirements, needs and goals. For most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and level of return.

Investment Planning also helps to decide upon the right investment strategy. Besides individual requirement, investment strategy would also depend upon age, personal circumstances and risk appetite.

Investment Planning also helps in striking a balance between risk and returns. By prudent planning, it is possible to arrive at an optimal mix of risk and returns, which suits particular needs and requirements.

Investment means putting the ideal money to work to earn more money. Done wisely, it can help you meet financial goals. Investing even a small amount can produce considerable rewards over the long-term, especially if you do it regularly. But one needs to decide about how much he / she wants to invest and where.

Options before investment

Investors choose wisely before investing which solely depends on the present market conditions, future prospect of the instrument, the return offered by the company and the season to invest in that particular instrument. For example, a good investment for a long-term life insurance plan may not be a good investment for higher education expenses. In most cases, the right investment is a balance of three things: Liquidity, Risk tolerance and Return.

  1. Liquidity — How easily an investment can be converted to cash, since part of invested money must be available to cover financial emergencies.
  2. Risk tolerance – The biggest risk is the risk of losing the money that has been invested, but the main thing is to how much investor can cover up and sustain with that. Another equally important risk is that investments may not provide enough growth or income to offset the impact of inflation, which could lead to a gradual increase in the cost of living. There are additional risks as well (like decline in economic growth). But the biggest risk of all is not investing at all.
  3. Return – Investments are made for the purpose of generating returns. Safe investments often promise a specific, though limited return. Those that involve more risk offer the opportunity to make – or lose – a lot of money.

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