How To Choose The Right Investment Plan

With investing becoming more mainstream, you may be curious to start investing yourself to achieve your financial goals. It’s easy to be drawn into popular investments such as cryptocurrencies and NFTs. But that doesn’t mean we need to follow them to be successful at investing. 

Like a thumbprint, we are all unique with different financial situations and goals. It’s important to tailor our investment plan to ourselves; rather than relying on the strategies used by other investors. 

Things to consider before you start investing

Before you start investing, you should ask yourself a couple of important questions to determine if you’re ready to begin. Here are the basics:

  1. Do you have large credit card debts and outstanding BNPL instalment debts?

If the answer is yes, then you’re not in a position to invest yet. You should focus on paying off your debts first, as no investment can ever outperform the interest and fees that you’re paying to service these debts.  

  1.  Do you have at least 6 months’ worth of emergency funds?

If the answer is no, then building your emergency fund should be your next priority. Unexpected events such as layoffs, natural disasters, major surgeries can immediately turn your life upside down, so it is best to prepare for it. Once you’ve saved up enough, you should NEVER invest your emergency fund. Ideally, you should keep it in a low-risk savings product that gives you stable returns and allows you to withdraw anytime… like Versa Cash.

When you’re ready to invest, here’s how you can start:

Step 1: Review your current financial situation for the best investment plan for yourself

The first step is understanding your present financial situation. This way, this can lay out the foundation of how much you can invest and your risk tolerance. You can do this by budgeting to evaluate your monthly disposable income and determine how much you can reasonably afford to invest.

It’s important to also ensure that you have built a good financial foundation. Ask yourself: do you have an emergency fund and enough funds to pay off any existing debts

Step 2: Set your investment goals

This step is key to ensuring your purpose when investing. Without it, investors tend to chase higher returns, leading to making riskier investments. Investment goals can be categorised as short, medium and long-term. 

Short-term goals need low-risk investments as they need to be achieved within a short period of time. 

Medium-term goals often overlap with short-term and long-term goals. We can’t always tell when the goals can be achieved. Like short-term goals, stick to conservative investments. But you need to step up the risk to improve your returns. 

Long-term goals usually look at the bigger picture. More time gives more flexibility. You can invest in growth assets – which tend to fluctuate more but produce higher returns over time. Since you have time to weather short-term ups and downs in the market, the risk is lessened. Once you approach the time when you need your money, switch to more conservative investments. This way, you reduce the risk and meet your goals on time.

Step 3: Determine your risk tolerance for your investment plan

Understanding your risk tolerance can help you design a portfolio that will benefit you in the long run. 

A cliché we often see is the “age-based” risk tolerance. The younger you are, the more risks you can take as your portfolio has time to recover from any losses. On the other hand, an older person who is nearing retirement age would have lower risk tolerance. 

Your net worth and funds that you can allocate for high-risk, high-reward investments need to be considered too. An investor with a higher net worth can assume more risk. 

Finally, your investment goals can also determine your risk tolerance. For example, if you are saving up for your retirement, how much risk are you willing to take with those funds?

Step 4: Decide what to invest in

With many investment options, one may find it overwhelming. Your budget, goals, and risk tolerance will guide you toward the right investments. 

Take into account the following:

Return — What are the expected returns? Does it come from income or capital growth?

Time frame — How long do you need to invest to get the expected return?

Risk —What are the types of risk? Are you comfortable taking on these risks?

Access to cash (liquidity) — How long will it take to cash in on your investment?

Cost to buy and sell — How much will it cost to buy and sell the investment?

Tax — How much tax will you pay on the investment earnings?

You can start off by investing with a small sum. Once you have gotten a feel of investing, scale up to a larger sum.

One key step in investing is to diversify your portfolio. Avoid putting all your money into one investment or asset class. You risk losing everything if that particular investment does not perform. By allocating your assets to different investments, you can maximise your growth and ensure stability.

Step 5: Track and rebalance your investments

Once you have made your relevant investments, study and track their performance and rebalance. At this stage, educate yourself and keep updated to ensure that you make the best choices for your investments.

If your investment plan is in good shape, you’ll want to consider rebalancing your portfolio. That means buying or selling assets in your portfolio to maintain your target asset allocation.

It’s always better to start investing now than later

With the threat of inflation, investing your funds is crucial to ensure you are not losing out. If you’re still at the planning stage, consider making a low-risk investment like Money Market Funds in the meantime. It offers higher interest with liquidity so you can withdraw your cash anytime – such as Versa Cash. This way, you have time to plan while letting your capital grow over time.