A well thought out investment plan is an important tool to help you reach your financial milestones, such as buying your first home or being ready for retirement. It can also help prepare you for the normal ups and downs of the market and take advantage of opportunities as they arise.
5 steps to creating your plan
1. Set specific and realistic goals
For example, instead of saying you want to have enough money to retire comfortably, think about how much money you’ll need. Your specific goal may be to have $500,000 set aside for retirement by the time you’re 65.
If you have multiple goals, divide them into short and long term. This will help you choose the right investment products to meet your goals.
2. Calculate how much you need to save each month
If you need $500,000 by the time you’re 65, how much will you need to contribute each month towards your retirement fund? Decide if that’s a realistic amount for you to set aside each month. If not, you may need to adjust your goals.
3. Choose your investment strategy
Know your personal risk tolerance and investment time horizon.
If you’re saving for long-term goals, you might choose more aggressive, higher-risk investments. If your goals are short term, you might choose lower-risk, conservative investments. Or you might want to take a more balanced approach.
4. Develop an investment policy statement with your adviser
An investment policy statement helps guide your investment decisions. If you have an adviser, your investment policy statement will outline the rules you want your adviser to follow for your portfolio.
Your investment policy statement should:
- specify your investment goals and objectives.
- describe the strategies that will help you meet your objectives.
- describe your return expectations and time horizon.
- include detailed information about how much risk you’re willing to take.
- include guidelines on the types of investments that make up your portfolio, and how accessible your money needs to be.
- specify how your portfolio will be monitored, and when or why it should be rebalanced.
5. Review your plan regularly
Your investment strategy, risk tolerance, and goals may change as your life situation changes. It is a good idea to review your investment plan once a year to make sure you are on track.
Your review can include re-assessing your risk tolerance, checking your financial goals, and making changes to your portfolio.
TIP – Remember these 6 steps to investing
- Set your goals
- Know your investing personality
- Create your plan
- Choose your asset mix
- Choose your investments
- Track your progress
TAKE ACTION
If your goal is retirement, use this RRSP calculator to help you create your plan.
