10 Steps That Build A Rock-Solid Investing Foundation

Many people go straight into their brokerage account and try to make some money. This might work, but when you have a solid plan in place, you’re chances for success are so much better.

Your investing strategy should always begin with going through an investment planning process. Here are the 10 steps that will set you up for investing success.

Investment Planning Process

Step 1 – Set Financial Goals

You can’t be successful in anything if you don’t know what you’re striving towards. That’s why the first step when it comes to investing is to determine your financial goals, both short-term and long-term.

Your goals should align with YOUR needs and values, not someone else’s. I’m saying this because many of us fall prey to living up to someone else’s ideal life instead of our own. Don’t waste decades like I did.

When you get specific and clear on your goals, it makes planning and achieving them so much easier.

Need ideas? Read this post about common financial goals to get your juices flowing.

Tips:

Pay off high-interest debt first so you can focus on contributing to your investment funds.

Set up an emergency fund to help you cover unexpected expenses without having to dip into your investments. Make sure it’s liquid and easily accessible.

Step 2 – Determine Your Investment Time Horizon

Identify the amount of time that you’re willing to have your funds invested. Your investment time horizon will depend on your financial goals and should be defined when you’re evaluating those.

Short-term goals may require a more conservative investing strategy to conserve your capital, while long-term goals allow for greater investment flexibility and more risk tolerance.

Step 3 – Evaluate Your Current Financial Situation

Review your current financial situation. What’re your income(s), expenses, assets, liabilities, debts, and existing investments.

This assessment provides a foundation for understanding your financial capacity and determining how much you can allocate towards investments to reach your goals.

It may also reveal that you need to get more serious about contributing to your investments. Financial experts advise saving 10% to 20% of your gross salary each year for your retirement.

Step 4 – Assess Risk Tolerance

Evaluate your risk tolerance by considering your comfort level with market volatility and the potential for investment losses.

This assessment will help you determine the appropriate level of risk you are willing to take in your investment portfolio. It will also guide you when deciding your investment strategy and the assets you purchase.

Want help figuring this out? This post outlines 6 factors to consider when evaluating your risk tolerance.

Potential Life-Saving Tip

Don’t make financial decisions from a place of desperation, fear, or scarcity. No good will come from it.

Step 5 – Educate Yourself

Take the time to learn about the different aspects of investing.

You want to gain a solid understanding of these areas. Don’t stress about trying to know everything overnight. It takes time to build up this knowledge.

As you become more knowledgeable and experienced, you’ll feel more comfortable and confident with managing your investments.

Step 6 – Develop an Asset Allocation Strategy

Determine the ideal allocation of your investment funds across various asset classes and sectors. The more diverse, the lower your risk will be. But too much diversity can diminish your returns.

Asset allocation strategies are a balance of risk and reward and should be based on your asset preferences, risk tolerance, investment goals, and time horizon.

Step 7 – Research and Select Investments

Once you know what kinds of assets you’re looking for, it’s time to conduct thorough research on the different investment options within each class.

Consider factors such as historical performance, risk profile, fees, management quality, and future growth prospects. Select investments that best suit your investment goals and risk tolerance.

Step 8 – Implement the Investment Plan

Once you’ve decided on your investments, take the necessary steps to acquire them in your portfolio.

If you haven’t already opened a brokerage account to gain access to deeper research, now’s the time. You’ll need to have one in order to purchase your stocks and other funds.

Make sure DRIP (dividend reinvestment plan) is turned on where you want it so that payouts automatically reinvest to help compound the growth of your portfolio.

Step 9 – Monitor and Review

Set a schedule to monitor the performance of your investments and review their alignment with your goals. Make this manageable. Every week or biweekly is a good start for income investing.

There’s no need to check things out every day. But it might be a good idea to utilize apps to set notifications for your holdings. This will bring awareness of big changes, so you can assess and recalibrate if necessary.

Keep track of market conditions, economic trends, and any changes in your personal circumstances that may impact your investment plan.

I highly suggest making a spreadsheet of your holdings with the purchase price and how much initial capital you invested. Brokerages do some strange calculations that skew the performance of your portfolio.

Step 10 – Make Adjustments

As you monitor your portfolio, don’t be afraid to make adjustments. This could involve rebalancing your portfolio, selling underperforming assets, or redirecting investments.

You may find new investments that better align with your metrics and goals. As you gain experience and feedback from your portfolio assets, it will become easier to know what needs done.

Periodically reassess your financial goals and investment strategy as a whole to make sure you’re heading the right direction.

If you’d like to consult with me to see if there are better investment opportunities available for your specific needs, get on a coaching session.

To Sum Things Up

If you want to be a successful investor, it’s essential to have a plan in place. It’s going to take time to go through all of the investment planning process steps, but when you do, you create a solid foundation for investing.

Remember that investment planning is an ongoing process. It requires continuous monitoring, evaluation, and adjustments to ensure your investments stay aligned with your changing financial situation and goals.