financialtreat – will explain about What are the Advantages of Investment Planning? which you will find in the following article. let’s look at this article carefully!
Investment planning is the process of identifying financial goals and changing them through the creation of plans. The Investment planning is a major component of financial planning. Investment planning begins with the identification of goals and objectives.
Then we need to match the investment planning goals with the available financial resources. Today there are many means of investment to invest in, the most common of which are cash, equity, bonds and property.
What are the Advantages of Investment Planning?
So according to the available funds we can invest in these vehicles to obtain our purpose and purpose. And if you do investment planning, you will get the following benefits.
Advantages of Investment Planning:
- Family safety: Investment planning is important from a family safety standpoint. If something happens to a working family member then the rest of the family will be financially safe with the investment.
- Manage income efficiently: It is possible to efficiently manage the income and expenses of people who have investment plans. Managing income helps the person to manage other expenses, tax payments, etc.
- Financial understanding: Investment planning helps in understanding our current financial situation. It becomes easy for an individual to evaluate an investment or retirement plan by having an understanding of finances.
- Savings: One should invest in a very definite means of investment. Funds can be easily taken from such investments in an emergency.
- Lifestyle: The savings resulting from investments are very useful in difficult times. For example, the death of individuals working in the family greatly affects the standard of living. At that time, the investment made by working people became a source of income that benefited the family.
Choosing an Investment Strategy
It’s like when you’re looking for a new pair of shoes. You may want to choose something that will last a long time, be comfortable to use, and don’t make yourself wonder if you have made a mistake when buying it.
The shoes should also suit your personal needs — whether for long-distance running, for work, or for going out at night. In view from many sides, making an investment plan and choosing a strategy is like when you want to buy suitable shoes.
You need one that suits your personal goals, whether the goal is saving money, for down payment on a house, children’s education, or retirement. When making an investment plan, you need a strategy that is convenient for you to do in the long run.
Maybe you shouldn’t be tempted to change strategies frequently, which ultimately has the potential to damage your investment plan. In the end, the best strategy (or combination of strategies) is the right choice for you.
The following are some basic strategies that you might be able to consider when starting to build an investment portfolio for the first time.
Asset Allocation
It’s an investment strategy that divides portfolios among asset classes — including stocks, bonds, and cash. Asset allocation helps us to strike a balance between investment risk and profit (return).
Each of the asset classes mentioned above has different movements in different market situations. That is, each asset class has its own risk profile and yield level. For example, stocks tend to offer the highest profit potential.
Stock prices can also be volatile, which means that in addition to being able to generate high returns, stocks may also experience losses or impairments. In contrast, cash or cash tends to be very stable.
The money in your savings account at the bank is most likely very safe. However, the trade-off for such stability is that savings accounts or other cash equivalents, such as certificates of deposit, offer relatively low returns. For savings accounts in Indonesia, it is usually between below 2%.
The proportion of each asset class an investor has will depend on their personal goals, investment timeframe, and risk tolerance. The time horizon is the amount of time an investor must invest before they reach their goal.
Then, risk tolerance is the investor’s willingness to lose part of his investment in exchange for a potential greater long-term return. Asset allocation may change over time.
An investor in his 20s who is saving for retirement may have a portfolio that is mostly placed on stocks. Stocks can offer the greatest potential returns.
With a period of 40 years before investors need the fund, they may have plenty of time and availability to cope with any downturn in the stock market.
A person who has retired and needs more direct access to cash may have more fixed income investments. An example is bonds, which are not so volatile and therefore are less likely to experience a sharp decline at a time when investors need them.
Diversification
One way to manage risk in a portfolio is through diversification, building a portfolio with diverse investments in different assets. Basically, diversification can help investors avoid all their eggs in one basket.
Alternatively, a better known term is not to put all the eggs in one basket. Try to imagine a portfolio invested in only one stock of an oil company. If the price of oil falls, the entire value of the portfolio will plummet.
Now try to imagine a portfolio that holds stocks from all sectors, in companies of any size from all over the world. Not only that, but his portfolio has a variety of bonds and even other investments such as real estate.
Similar to asset allocation, the idea here is that these different investments will behave differently as long as market conditions change. For example, U.S. stocks may not have the same performance as European stocks, and energy stocks may not be the same as those of medical companies.
With a diversified portfolio, when market conditions change — such as falling oil prices — one investment group may suffer while the other does not. So the risks will be spread.
Rebalancing
Your portfolio may change over time. During a bull market, you may find stock investments performing well. So, now stocks have a much larger composition than your previous portfolio.
Remember that when balancing your portfolio, adjust it based on personal goals, time horizons, and risk tolerance. So, when there is a shift, investors may want to buy or sell assets in order for their portfolio to return to match the planned asset allocation.
Dollar Cost Averaging
Dollar Cost Averaging is a process by which investors invest regularly, making purchases of assets at any price. For example, an investor might choose to invest IDR 1,000,000 a month in an index fund that tracks the S&P 500 or, Micro E-mini S&P 500 Index Futures in Pluang.
The share price for the fund will most likely vary from month to month. Although the amount of money that investors use to buy stocks has not changed. Under these circumstances, investors buy fewer portions of the stock when the price is high and more when the price is low.
These investment strategies and plans can help investors reduce buying at high prices and sales at low prices. And since investments are made on a regular schedule with a specified amount of money, this strategy becomes one of the ways for investors to avoid emotional investments.
Read more financial advisor:
Buy and hold
Investors who choose to use a buy and hold strategy will usually buy stocks and keep them for the long term, regardless of short-term market movements. Investors who have these investment plans believe that they will achieve returns in the future despite fluctuations in the market in the short term.
Fluctuations in the market are a normal occurrence, but investors may still feel nervous and want to sell their shares at the first sign of a decline. However, this tendency can hurt investors, as selling stocks locks in losses that they may incur and means they can lose their next rebound in price.
A buy and hold strategy might help control this trend. In addition, a buy and hold investment strategy can help investors minimize the costs associated with buying and selling. Finally, it can help increase the overall return on the portfolio.
That’s a little bit of an explanation of the investment plan. There are many advantages if you want to start it for the sake of the future. Good luck and good luck.