How To Create A Do It Yourself Investment Plan?
On many occasions, the world of investments seems foreign to us, something that the rich do, but it is not for us. And anything further from reality! The truth is that anyone can invest and get good results with very little money. And anyone can design an investment plan. That’s what today’s article is about, how to create a Do It Yourself investment plan.
As you will see, you only need to know your objectives and risk profile. From there, you will be able to decide what type of investment is the one that best suits you and choose the investment vehicles that best respond to that type of investment. Don’t worry! We will guide you through all this step by step so you don’t miss a thing. Come on!
Determine Your Risk Profile
The first and most important thing is that you determine what your risk profile is. This is essential because most of the people who lose money investing did not know their risk profile beforehand and entered into investments that were too risky for them. When that risk became visible through high downside volatility, they sold (because they couldn’t take the pressure) and lost money.
This is something very common. At the other extreme, we have the case of people who could bear a high level of risk and high volatility to the downside but invest in very low-risk and volatile products. In these cases, there is no loss of money, but there is an opportunity cost (you are earning less than you could be earning, which is equivalent to losing money).
So the first thing you must do is determine your risk profile. In this way, you can invest in the way that best suits your characteristics, your time preference, and your aversion to risk. And, consequently, obtain the best possible results, of course. To determine your risk profile, you can use any of the many tools you will find by googling “What is my risk profile as an investor.” We are not going to explain it here.
Determine Your Dedication
Another aspect that you have to take into account is what your dedication will be. How much time of your day do you want to dedicate to the subject of investment? This is essential to clarify not only something as obvious as whether you want to trade or invest in the long term but also to determine what type of investment vehicle you will use and what specific assets you will invest in.
If you do not want to spend a lot of time investing, you will have to opt for more diversified options that require less work (at the cost of reducing the possible returns and returns). If you are willing to spend more time investing, you will be able to spend more time selecting vehicles and assets that are right for you and with a higher return expectation.
Choose The Investment Vehicle
Once you are clear about the above, you must choose which investment vehicle you will use. This may be unthinkable right now. You do not know which is the right investment vehicle for you, and you do not even know how to get to know it. But, if you complete the two previous points and understand the nature of the most common investment vehicles, you can decide easily.
Of course, if you do not know the different investment vehicles available to you, you should not invest but study to learn a little more. You should not invest if you do not have above-average knowledge of finance. But here we are, assuming you have that knowledge, at least at a basic level.
The point is that you will have to choose the most suitable investment vehicle. If you are willing to spend a lot of time on the subject, you can select the assets in which to invest yourself. Or at least the actively managed mutual funds that will do that work for you. If this is not your case, if you are not willing to spend some time looking for the best options, the best thing you can do is invest in RoboAdvisors.
Choose The Assets
The next point is to choose the assets you will invest in. Whether you invest yourself by doing good asset selection or outsourcing it to a management team, you’re going to have to choose what types of assets you invest in (except actively managed funds – and even then, you often have to do some work, as you have to select funds based on their assets and investment strategies).
Be that as it may, the choice of assets will depend on your risk profile. If you have a high aversion to risk, you will not want to invest in companies directly or in investment funds in equities. It would help if you chose those assets that fit your risk profile.
If you are not risk-tolerant, you can opt for fixed income (not highly recommended), well-diversified index funds, or real estate. If you have a higher risk tolerance, the best thing you can do is invest in equities (choosing the companies yourself or leaving it in the hands of fund managers is something that will depend on how much time you want to dedicate to investing).
As you can see, creating your investment plan is not too difficult. Of course, you may need to do some investing research to be more confident in your decisions. But beyond that, anyone with a basic understanding of finance and math can do well. So go ahead!
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