Investment planning begins after you have taken into account your current and expected income level and have laid down your financial goals. The important aspects of investment planning are:
Capital growth versus regular income: Investors aiming at long-term goals focus on capital growth. A long-term investment will allow you to tide over rough times without changing your plans. Stocks, mutual funds and real estate represent investment options for capital growth. On the other hand, if you're investing to meet a short-term goal or to give you a regular flow of funds to complement your present salary, you should opt for income investments. These investments generate a regular flow of income in the form of dividends and interest and include fixed-income investments, such as bonds and certificates of deposit (CDs). While making a selection, you should consider the tax implications and associated risks.
Risk: Every investment option represents a unique risk-return trade-off. Typically, more risky investments offer higher returns in order to make it worthwhile for investors to take on the additional risk. Investment planning should take into account an investor’s risk appetite, which dependents on your current income level, savings, lifestyle and responsibilities.
Determine your investment profile: This can be done by considering your risk appetite. There are mainly four types of investment profiles: