The Fundamentals of Investment Planning

Key Takeaways

• An investment plan is a tool used in financial planning for developing an investing strategy to achieve financial goals. 

• Making an investment plan begins with assessing one’s financial goals and ends with investment and regular monitoring of holdings.

• Investors with a plan have the structure to sustain confidence throughout market fluctuations.

While one cannot predict the future, if one is going to invest, one should have a plan. Such a plan, of course, can be revised along the way, as life and markets dictate. But what is an investment plan, and how is one constructed? Here are the fundamentals of investment planning.

What is an Investment Plan?

An investment plan is a tool used in financial planning for developing an investing strategy to achieve financial goals. 

As a critical part of the financial planning process, an investment plan informs investment decisions and can improve the chances for favorable returns.

Investment planning, then, is the process of identifying financial goals and creating a strategy to reach them.

Why is Making an Investment Plan Important?

To many people, investing can seem complicated and perplexing. This can cause prospective investors to eschew investing altogether. While every investment carries risk, understanding investment fundamentals can promote creation of an investment plan. Such a plan can help one achieve financial goals.

Investment strategies permit investors to weigh all objectives. Investors can use such strategies to assess how much capital they can invest and still meet other financial responsibilities. Investment plans gauge and evaluate any risks.

Investment strategies help investors stick with a plan. When a market experiences a downturn, for example, investors who are unprepared may withdraw from their assets. Investors with a plan, though, have the structure to sustain confidence throughout market fluctuations.

Investment planning can be instrumental to gaining financial freedom. Such planning can help individuals generate income, minimize tax liability, and budget expenses. Further, making an investment plan can help ensure financial security and safety for the investor and their family. 

What is a mortgage broker? If one is investing in real estate, an investment plan can cover that as well.

Objectives of Investment Planning 

An investment plan basically helps one structure how much capital is allocated to asset classes such as stocks, bonds, and alternatives, to maximize returns. 

Fundamental investment objectives really come down to the trio of safety, income, and growth. The trick is to find the right balance. After all, the success of one objective can come at the expense of one or two of the others.

Steps in Making an Investment Plan

Making an investment plan begins with assessing one’s financial goals and ends with investment and regular monitoring of holdings.

What is a mortgage broker? It is a person who acts as an intermediary in the real estate market. Here, though, are steps to making an investment plan:

• Assess one’s existing financial situation. That means determining how much money one can afford to invest and how liquid one wants their investments to be. Note that some investments require a large upfront sum.
• Assess their risk tolerance. Because there is more time to recoup losses, those who are new to investing may have a higher risk tolerance. By contrast, an investor who has, over a long period, already crafted a portfolio, may be less amenable to risk.
• Establish time-based goals. It is now time to set the outcomes one wants — and when one would like to see them. During one’s investment period, possessing a plan based on one’s time horizon can improve decision making.
• Select the investments. Now, one can determine which investment types and asset classes align with one’s financial state, risk tolerance, and goals. Consider all the investment types stocks, bonds, and alternatives such as art and real estate.
• Monitor one’s investment progress. Periodically, investors must assess where they are, and whether they are on track with their goals. They must track investing progress over time and, as necessary, adjust. Note that short-term investments generally require more active attention than longer-term investments.

Art as an Investment 

Increasingly, making an investment plan includes the art market. For nearly a generation, the market has become more accessible and transparent, due in part to the Internet. 

In 2020, during a global pandemic, the contemporary art market alone appreciated by 15.1%, according to Art Basel. During years such as 2008 and 2018, when nearly all traditional asset classes lost money, it was art that performed well. 

The asset class has global marketability and can improve returns. Art also has low correlation with constantly fluctuating public markets, which can reduce portfolio volatility.

There are a number of ways to invest in art, including through the alternative platform Yieldstreet. Private-market alternative investments, which includes art, comprise asset classes other than stocks and bonds. Historically, over every downturn of nearly the last two decades, private markets have outperformed stocks.

Yieldstreet, on which $4 billion has been invested to date, offers the broadest selection of alternative asset classes available. That includes highly vetted and curated opportunities in art. For example, Yieldstreet’s art equity funds enable investments in art without the responsibilities that come with owning physical works. They also do not require a high level of art market expertise.

Investing in art also serves another crucial purpose — diversification. Building a modern investment portfolio of varying asset classes with differing expected performances can mitigate risk and even improve returns.

Alternative Investments and Portfolio Diversification 

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios. 

In Summary

Whether determining, What is a mortgage broker? or considering art as an investment, making an investment plan first is key. After all, a well-constructed investment plan can help produce income and lower tax liability, among other benefits. It can also lower risk through diversification, which is key to long-term investing success.