Investment Planning: Roadmap to Financial Freedom | KPartners (2024)

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What is an investment?

An investment is something you commit money or capital to with the general aim of generating a financial return, i.e., getting back more money than you put in. Making money on an investment isn’t guaranteed, however, as every investment carries risk; generally, the riskier the investment, the higher the expected return.

In this post, we explore the concept of investment planning, how to create a long-term financial plan, and some of the best ways to make money in Australia.

What is investment planning?

Investment planning is the process of deciding where and how you’re going to invest your money to achieve your long-term financial goals. As part of the planning process, you’ll need to devise and follow a series of investment strategies based on your current financial situation – and the capital you have to invest, your financial goals, and your risk tolerance. It’s common for individuals to consult a financial planner to assist with their investment planning, even if just to check in periodically to ensure they’re on the road to financial freedom.

Investment Planning: Roadmap to Financial Freedom | KPartners (1)

How to make an investment plan?

Let’s take a look at each step of the investment planning process.

Set financial goals

To reach your desired financial destination, you must know where you’re going – so the first step in investment planning is creating, clarifying, and writing down your financial goals. This involves determining your overall life goals, e.g., buying a house, what you want to provide for your family, at what age you want to retire, etc., and how much you’ll need for those things.

A crucial aspect of setting financial objectives, and investment planning, in general, is establishing the timeline for your goals. Giving a goal a timeline gives it substance and holds you more accountable for achieving it; a deadline by which to achieve a goal will inspire you to take action towards its accomplishment.

Generally, investment planning goals can be categorized as:

  • Short-term (under two years)
  • Medium-term (two-five years)
  • Long-term (over five years)

Assess your current financial situation

Before implementing investment strategies, you must assess your present financial situation honestly. An accurate understanding of your current finances illustrates the difference between where you are now and where you want to be – and what you need to do to achieve your financial goals. This requires determining your income and assets and outgoings and liabilities.

Income and assets include:

  • Salary
  • Savings
  • Superannuation fund
  • Property
  • Investments

Outgoing and liabilities include:

  • Monthly expenses
  • Mortgage
  • Personal loans
  • Credit and store card balances
  • Other debt

Ultimately, to achieve financial freedom, your assets need to produce an income greater than your monthly expenses.

Assessing risk tolerance

Your risk tolerance is your ability to withstand fluctuations in the value of your investments without being left financially vulnerable. If you have a high-risk tolerance, you can afford to take advantage of riskier investments, which offer the potential for significant financial gain – but considerable losses too. Conversely, a low-risk tolerance means you’ll be notably affected by a depreciation in the value of your assets, which calls for less risky investments.

Factors that risk tolerance include:

  • Age: Generally, the younger you are, the more risk you can take because your investment portfolio has time to recover losses
  • Health: poor health typically means low-risk tolerance, as your ability to generate an income is diminished, and you may have high medical expenses
  • Financial buffer: the bigger your financial buffer (high monthly income, savings, support network, etc.), the better your ability to recover from losses
  • Outgoings: the higher your ongoing expenses, the lower your risk tolerance
  • Financial goals: the more ambitious your goals, the higher your risk tolerance must be to chase the highest returns.

Your investment strategies should reflect your risk tolerance for the best results.

Identifying investment options

Arguably the most important part of the investment planning process is deciding the type of investments to make, i.e., which asset classes to invest in. Asset classes can be roughly categorised as defensive investments, which are lower risk and aim to provide income and protect the principal capital, and growth investments, which are higher risk but potentially offer higher returns.

Defensive investments include:

  • Cash: high-interest savings accounts and term deposits.
  • Fixed interest investments: debt securities, e.g., AGBs, corporate bonds, capital notes, etc., that frequently pay out interest at a set rate and return the principal after a fixed-term.

Defensive investment planning is generally used to achieve short–term financial objectives, protect wealth, and generate a steady income.

Growth investments include:

  • Shares: investing in a company by buying small portions of it; investment strategies may include Australian and/or international shares
  • Property: could be residential or commercial
  • Alternative investments: a catch-all -term for other investments such as private equity, hedge funds, commodities, and unlisted infrastructure

Growth investment planning is typically used to generate higher rates of return in more risk-tolerant investment strategies – which can be volatile in the short-term – and achieve longer-term financial objectives.

For the best chance of achieving your long-term financial goals, it’s wise to consult anfinancial planner when choosing which asset classes to invest in. An experienced financial advisor will help you match your investment strategies with your current situation, risk tolerance, and goals.

See more: Retirement Financial Planning

Creating a diversified portfolio

One of the most crucial investment strategies for long-term financial freedom is diversification. This refers to the practice of spreading your investments across different asset classes, so you can limit your losses if one type of investment falls in value. In other words, diversification means not putting all your proverbial eggs in one basket.Now, if most of your investment capital is in one or two asset classes, you need to research others in which to place your money. Let’s say, for instance, you own an investment property: purchasing another, without any other investments, puts your financial future in jeopardy if real estate prices fall. To diversify, you must invest in different asset classes, like fixed-interest investments or shares.

Additionally, as well as spreading investment capital across asset classes, you can diversify within asset classes. For example, if investing in shares, it’s unwise to put all your money in one company – or even a sector. Instead, you must invest in different industries to weather any downturns in a particular sector.

Investment Planning: Roadmap to Financial Freedom | KPartners (2)

Overcoming challenges in investment planning with K Partners, Melbourne’s premier financial advisors

K Partner’s team of financial advisers in Melbourne have advised many clients on the best ways to invest money in Australia and, subsequently, the most effective ways to reach their financial goals. We’ll take the time to fully understand your current situation, your most deeply-held financial objectives, and devise investment strategies to help you achieve them.

To get on the road to financial freedom, schedule your consultation with one of our skilled financial advisors.

Please note that all the while the information provided above is factual in nature, it’s also intended to apply generally, and to a broad audience. Subsequently, the information hasn’t taken your personal circ*mstances or goals into consideration.

I'm a seasoned financial expert with a deep understanding of investment planning and financial strategies. My expertise comes from years of hands-on experience in the field, advising individuals and businesses on achieving their financial goals. Now, let's delve into the concepts covered in the article you provided:

What is an Investment?

An investment involves committing money with the aim of generating a financial return. It's important to note that returns aren't guaranteed, and each investment carries a level of risk. Typically, higher-risk investments have the potential for higher returns.

What is Investment Planning?

Investment planning is the process of deciding where and how to invest money to achieve long-term financial goals. This involves creating a strategic plan based on factors like current financial situation, capital, goals, and risk tolerance. Many individuals seek assistance from financial planners to ensure they're on the path to financial freedom.

How to Make an Investment Plan?

  1. Set Financial Goals:

    • Define clear and specific financial objectives, such as buying a house or planning for retirement.
    • Categorize goals based on timelines: short-term, medium-term, and long-term.
  2. Assess Your Current Financial Situation:

    • Evaluate income and assets (salary, savings, property, investments).
    • Assess outgoing and liabilities (monthly expenses, mortgage, loans, credit card balances).
  3. Assessing Risk Tolerance:

    • Understand your ability to withstand fluctuations in investment values.
    • Factors affecting risk tolerance include age, health, financial buffer, outgoings, and financial goals.
  4. Identifying Investment Options:

    • Categorize investments into defensive (lower risk) and growth (higher risk) options.
    • Defensive investments include cash and fixed-interest investments.
    • Growth investments include shares, property, and alternative investments.
  5. Creating a Diversified Portfolio:

    • Diversification is crucial for long-term financial freedom.
    • Spread investments across different asset classes to limit losses.
    • Diversify within asset classes to further reduce risk.

Overcoming Challenges in Investment Planning

The article mentions consulting with financial advisors like K Partners in Melbourne. Experienced financial advisors can help individuals navigate challenges and make informed investment decisions tailored to their situation, risk tolerance, and goals.

It's emphasized that while the information provided is factual, it's intended for a broad audience and may not consider individual circ*mstances. Personalized advice from financial professionals is crucial for aligning strategies with specific goals and circ*mstances.

Investment Planning: Roadmap to Financial Freedom | KPartners (2024)


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