Financial WELLNESS with Richmond Kwame Frimpong: 7 golden steps to building a good investment plan in 2022

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Financial WELLNESS with Richmond Kwame Frimpong: Debt management 101  
Richmond Kwame Frimpong

Preamble: When it comes to wealth creation, you need to start with a solid plan. A plan that is personalized to your situation, and one that is appropriate to meet your financial goals and objectives. This is because everyone is different, so every plan should be unique. Building a good investment plan to help secure your financial goals, requires a careful understanding of some of the basics of investing rules.

The questions below will thus help you to build a sound investment plan.

  1. What Is Your Investment Objective?

An investment objective is a purpose for which an individual invests. Investments decisions must be made with a clear goal or objective in mind: regular income, liquidity, capital preservation, or growth. The first thing you need to decide is which of those characteristics is most important.

Do you need current income to live on in your retirement years, growth so the investments can provide income later, or is safety (preserving your principal value) your top priority? For example, if you are 55 years or older before you create an investment plan, you really should define your objective (for instance a retirement income plan). This type of objective, for instance, will help you project your future sources of income and expenses, and your financial account values including any deposits and withdrawals. It helps you identify the point in time where you will even need to use your money and once you have a clear time-frame you know whether to use short, mid, or long-term investments.

  1. How Much Can You Realistically Set Aside for Investing?

Many investment choices (i.e. collective investment schemes, fixed-term deposits, bonds, etc.) have minimum investment amounts, so before you can build a solid investment plan you have to determine how much you can invest in practical terms. Do you have a lump sum, or are you able to make regular monthly contributions? Some mutual funds for instance allow you to open an account with as little as  GH¢200.00 and then set up an automatic investment plan starting with as little as GH¢50 a  month which would transfer funds from your savings/current account to your investment account. Investing monthly in this way is called cedi-cost-averaging and it helps reduce market risk. If you have a larger sum to invest, obviously more options are available to you. In that case, you’ll want to use a variety of investments, so you can minimize the risk of choosing just one. The most important decision you  ’ll make is how much to allocate to the various investment classes.

  1. When Will You Need This Money Again?

How much time one has can alter one’s investment plans, and it can pivot the level of risk you can take. Just having a longer time horizon does not guarantee a higher return but it does mean you have time on your side to consider other investment options and strategies that might give you an advantage in the long run. Establishing a time frame(duration) you can stick with is of great importance. If you for instance need the money to buy a car in a year or two, you will create a different investment plan than if you are doing the same to buy a property in 10 years. In the first case, your primary concern is safety – not losing money before the future purchase. In the second case, you are investing in a long-term goal, and anticipating significant growth in returns. What you care about is what choices are most likely to help your account be worth the most by the time you are ready to make your withdrawal.

  1. How Much Risk Can You Take?

It is a common saying that “the higher the risk, the higher the returns, and vice versa”. Some investments entail what we call a level five investment risk; the risk that you can lose almost all your money. These investments are too risky for most people. One easy way to reduce investment risk is to diversify. By doing so you may still experience swings in investment value, however, you can reduce the risk of a complete loss due to bad timing or other unfortunate circumstances. To build a solid investment plan, you may have to be cautious of buying only for high yield investments. There is no such thing as high returns with low risk. Better to earn moderate returns than swing for the fences. If you decide to swing, remember, it can backfire and you can experience big losses.

  1. What Product Should You Invest in?

Too many people buy the first investment product presented to them. Better to lay out a thorough list of all the choices that meet your stated goal. Then take the time to understand the pros and cons of each. Next, narrow your final investment choices down to a few that you feel confident about. Some investments are great for long-term retirement money. Others are more speculative, which means maybe you can put some “play money” or “take a chance” money into them, but not all of your retirement savings.

  1. Where (Investment house) Should You invest?

Where you invest your money is as important as why you are investing the money. To build a good investment plan, it is imperative to take time to investigate who would be watching over that investment and how safe your money can be with them. One of the smart ways of knowing who watches over your money and their credibility is to take a look at the governance structures of the said institution, how well they are regulated, and their track record; so investigate if they are licensed by the regulatory authority, get to know the board of directors, get to know the management team among others and it will guide you in your investment decision.

  1. How Often Can You Invest?

Automating your investment deposits consistently over a period of time is still the best way to save more and worry less. This helps the investor not to cede to the temptation of spending unnecessarily, and the laziness that comes with having to physically walk or drive to the financial advisor every month to make a deposit. Automating your investment deposits can thus be done via standing orders or direct debit with your regular bank, and that will save you a whole lot of time.

You may send comments, questions or suggestions if any to [email protected] and @richmondkwamefrimpong across all social media platforms

 

 

 

 

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