Investment Planning

Asset allocation and diversification

In just about all of life's endeavors, planning is critical to success. Investing is no different - with an effective plan, you increase your profit potential.In fact, an Investment Plan is an essential part of an overall financial strategy. An Investment Plan lets you put your savings to work, according to your goals. Here's how to establish and maintain an Investment Plan:

1. Set goals – Establish objectives
   
   The first step is to understand why you want to invest in the first place. Everybody has their own reasons, whether it's to build retirement wealth, buy a bigger house, start a business or put children through school. Once you've established realistic goals, you can go about calculating how much wealth you'll need to accumulate.
   
   
2. Get comfortable with risk – Risk tolerance
   
   The amount of investment risk you're willing to take will have a huge impact on your financial plan. If you can tolerate a higher degree of risk, you could potentially experience greater long-term investment growth - but you also increase your chances of having your portfolio go down in value, especially over the short term.
   
   Some investors are uncomfortable with risk, while others don't mind the ups and downs of potentially volatile investments such as equities. But it's not just your psychological tolerance that comes into play. You must consider factors such as your age and the length of time until you need your investment capital. For example, a major goal for most people is ensuring they will have adequate assets in place for when they retire. With that in mind, the closer you are to leaving the workforce, the more you should temper risk. The last thing you need is to jeopardize your retirement wealth.
   
   
3. Consider Time Frames
   
   You must consider factors such as your age and the length of time until you need your investment capital. For example, a major goal for most people is ensuring they will have adequate assets in place for when they retire. With that in mind, the closer you are to leaving the workforce, the more you should temper risk. The last thing you need is to jeopardize your retirement wealth.
   
   
4. Put together a diversified portfolio – Determine the proper mix
   
   When you know where you're going, it's time to choose investments that will get you there.
   
   For most investors, mutual funds are ideal because they offer instant diversification. Or, you can invest directly in a diversified portfolio of securities such as stocks and bonds.
   
   It's important to diversify. Your portfolio should include the three basic asset classes - cash, fixed income and equities. This way you have some protection from downturns in any one type of asset, while taking advantage of a wider range of potential returns.
   
   Your asset mix will depend on your goals and personal circumstances. As a general rule, your portfolio should have a higher proportion of equity investments to build wealth while you're young. Equities may need to be pared back in favour of more secure income-oriented investments as you grow older.
   
   
5. Regularly review your plan and rebalance as necessary.
   
   Once your investments are in place, don't ignore them. You should conduct a review of your portfolio performance at least once a year. More frequent assessments may be required because of financial market volatility, or changes in your life such as marriage or divorce, the birth of a child, a new job, or increased salary. Rebalancing your portfolio is important to make sure it still fits your needs.

The best way to help ensure your goals are suited to your needs, and that your Investment Plan is effective, is to work with a professional. At Efficient Wealth Management, we can help you define your goals, assess your risk tolerance, set up a strategy, and choose appropriate investments. We will also show you how to measure the performance of your investments against appropriate benchmarks, to monitor our progress. Together, we will build a solid Investment Plan to achieve your goals and objectives.