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How to write an Investment plan | Investment policy statement - YouTube
Channel: Foolproof Financial Freedom
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When the market crashed in 2020, how did you feel?聽
Did it make you anxious? Did your investments take聽聽
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a nosedive? Did you sell your holdings in a聽
panic thinking the market will never recover?聽聽
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The market returned to its pre-crash level by聽
November 2020 and those who sold their investments聽聽
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in a panic suffered a permanent loss of capital.聽
Those who stayed invested and continued investing聽聽
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were able to become wealthier than before.聽
If you don't want to be an emotional investor聽聽
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you need a plan that will act as a聽
beacon guiding your investing journey.聽聽
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Hi there I'm Avanti. I'm a mom, an聽
investment analyst, and a CFA charter holder聽聽
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and I've helped dozens of women take control of聽
their financial futures. Subscribe to my youtube聽聽
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channel and follow my facebook page to learn how聽
you can build your own wealth through investing.聽聽
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In this video i will talk about how you can create聽
an investment plan that will help you achieve your聽聽
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financial goals. Whether you work with a financial聽
advisor or invest on your own having a plan to聽聽
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guide you will help you make better decisions.聽
An investment plan should include all of your聽聽
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financial objectives and constraints, your risk聽
profile, the types of investment vehicles suitable聽聽
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for specific objectives, and your review and聽
rebalancing schedule. Below in the description i聽聽
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have shared my template with you. Different people聽
use different versions of an investment plan so聽聽
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feel free to modify it to best suit your needs. If聽
you're having a hard time coming up with your own聽聽
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financial goals, I've given you a list of sample聽
goals for different decades of your life. You聽聽
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can use it as a guideline. You don't necessarily聽
have to follow all the goals and in the template聽聽
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you will have to enter your own inputs for the聽
target amount needed for each goal the amount that聽聽
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you've already saved, returns, etc. and based on聽
those inputs the template will tell you how much聽聽
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you need to save each month toward every single聽
goal. The purpose of an investment plan is to give聽聽
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you a snapshot of your investment objectives and聽
constraints and prevent you from making emotional聽聽
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decisions from market moments or anything聽
that's happening around you. Let's begin.聽聽
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Step number one - identify all your goals that you聽
want to achieve. I try to classify goals as short聽聽
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term and long term. So anything that needs to be聽
accomplished in the next five years is short term聽聽
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and anything beyond is long term. A few examples聽
of short-term goals can be to save for vacation聽聽
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over the next five years, to pay off credit card聽
debt, to build an emergency fund, and so on. A few聽聽
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examples of long-term goals can include saving for聽
retirement, saving for kids' college education,聽聽
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and so on. Step number two - identify all聽
the constraints related to your goals.聽聽
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There are five main constraints that you need to聽
identify. The first constraint is time horizon.聽聽
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This is the time by which you want to achieve聽
your goal. For example, if you want to retire聽聽
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in 20 years your target horizon for retirement is聽
20 years. If your goal is to save for your kids'聽聽
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college education your time horizon is the time聽
between now and the time she goes to college. If聽聽
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you plan to pay off your student debt in two years聽
your time horizon for that goal is two years. The聽聽
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longer your time horizon the more risk you're聽
able to take in that portfolio. For example,聽聽
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if you plan to retire next year, a 100% allocation聽
to risky assets such as stocks is not recommended.聽聽
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If the market goes down before you retire your聽
portfolio will have almost no time to recover聽聽
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and you will have no time to make additional聽
contributions to your retirement portfolio聽聽
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to make a significant impact. As you get closer聽
to your goals your time horizon will shrink聽聽
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so it's important to choose assets based on the聽
time horizon. The second constraint is liquidity聽聽
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requirement, Liquidity is the ability to convert聽
an asset quickly into cash without loss of value.聽聽
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When you hold cash in your wallet or in your聽
checking or savings or money market accounts it聽聽
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is highly liquid. If you deposit a hundred dollars聽
in your checking account today you are able to聽聽
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withdraw hundred dollars tomorrow without any聽
significant risk. Contrast that with a physical聽聽
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asset such as real estate. If you own a house it聽
is not easily convertible to cash. When you put聽聽
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hundred dollars in an investment asset such as a聽
stock or an index fund today you may not know what聽聽
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the value will be tomorrow when you need the money聽
so when you try to convert that investment asset聽聽
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into cash tomorrow you may not receive $100. So聽
there is a potential for loss of value. Large cap聽聽
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U.S. stocks are liquid in that you can trade them聽
on the exchange but there's always a potential for聽聽
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loss of value and you may not be able to recover聽
this the same amount you had invested. Go back and聽聽
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look at your financial goals and determine if聽
they have a high or low liquidity requirement.聽聽
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For example, if one of your goals is to save for a聽
down payment on a house and you plan to purchase a聽聽
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house in the next two years it may not be the best聽
idea to put the amount that you're saving for the聽聽
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down payment in the stock market which can go up聽
or down over the short term. The third constraint聽聽
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is taxes. Taxes can reduce the total investment聽
return that you generate in your portfolios聽聽
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so if you're saving for retirement or college聽
education or health savings you may be able聽聽
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to choose tax advantaged accounts that will give聽
you some tax benefits. The fourth one is legal or聽聽
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regulatory constraints. For example if you have a聽
401k account through your employer the government聽聽
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imposes certain restrictions on how much you can聽
contribute. So for example in 2022 you can only聽聽
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contribute up to $20,500 of your individual money聽
to your 401k plan. Or as an American citizen for聽聽
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example you cannot invest new money into countries聽
like North Korea. Number five unique or personal聽聽
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circumstances. Some people have some restrictions聽
on what kind of companies they like to invest in.聽聽
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So for example some people will not invest in聽
companies that manufacture or sell guns or tobacco聽聽
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or any non-ESG type of companies or companies聽
that do animal testing. As you add any unique聽聽
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circumstances or constraints to your investment聽
plan the cost of owning and managing a portfolio聽聽
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may go up. Again I'm not saying that聽
you should or shouldn't have any unique聽聽
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constraints but make sure that you do understand聽
how much it will cost you in the long run to have聽聽
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these constraints. This video right here will tell聽
you how seemingly low mutual fund fees can hurt聽聽
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your investment assets by a sizable amount. If you聽
like what you heard so far please smash the like聽聽
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button and if you haven't already subscribe to my聽
channel so you get access to all my latest videos.聽聽
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Also, if you're watching me on facebook don't聽
forget to follow my page. I post a new video every聽聽
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week and to help you better allocate your income i聽
have linked my personal budgeting worksheet in the聽聽
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description below so don't forget to grab that.聽
Okay we are two steps down. Step number one was聽聽
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to identify all your goals. Step number two was聽
to identify all the constraints as they relate to聽聽
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those goals. Step number three is to determine聽
the kind of strategy each goal should utilize.聽聽
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There are four broad investment strategies to聽
consider. The first one is capital preservation聽聽
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it should help you maintain purchasing power聽
of your assets without a significant upside聽聽
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it's a perfect strategy for near-term liquidity聽
needs. For example, if you have a child going to聽聽
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college next year you wouldn't want your 529 plan聽
to lose its asset value. However, if college is 15聽聽
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years away you would want to invest in strategies聽
that will help the 529 assets appreciate in value.聽聽
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The second strategy is capital appreciation.聽
It should help your assets appreciate over the聽聽
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long run without providing any current income in聽
dividends or interest. This is perfect for someone聽聽
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who has a current steady source of income but聽
wants to invest for retirement which may be years聽聽
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away. The third strategy is current income and聽
is perfect for retirees with no current source聽聽
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of income. It should help provide for聽
income through interest and dividends.聽聽
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Finally, the total return strategy which is聽
similar to the capital appreciation strategy聽聽
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but also provides some amount of current income.聽
It could be used by early retirees who are still聽聽
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employed in a part-time capacity so聽
they need some amount of current income聽聽
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but they still have a long time in retirement聽
and want their assets to grow. Step number four聽聽
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determine how much you need to put towards each聽
goal every month in order to accomplish your聽聽
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goal by the target horizon. If you haven't grabbed聽
my investment plan template yet go grab it now聽聽
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and if you have any questions leave them in聽
the comments. I promise I will get to them聽聽
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as soon as I see them. You can download聽
the template and save it as an excel file聽聽
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on your local drive. So when you fill out all the聽
information, the goal information and constrains,聽聽
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the sheet should automatically tell you how much聽
you need to save towards each goal. Now, don't聽聽
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fret if you see an amount that seems unreasonably聽
high. You can always make adjustments. So for聽聽
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example if one of your goals is to pay off student聽
debt in the next two years and the monthly amount聽聽
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that shows up in the template is too high and you聽
don't think you're going to be able to afford that聽聽
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much, don't worry. Just change your target horizon聽
instead of having a goal to paid off in two years聽聽
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you can change it to three years or four years聽
or five years whatever makes you comfortable.聽聽
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Once you've completed the exercise you can聽
now prioritize and re-prioritize your goals.聽聽
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Make sure to have some consistency in putting聽
money towards those prioritized goals.聽聽
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Step number five determine the types of accounts聽
and investment vehicles to use for each goal.聽聽
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There are several different types of accounts you聽
can use - retirement accounts that are discussed聽聽
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in this video, there are HSA plans, brokerage聽
accounts, checking accounts, savings accounts,聽聽
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money market accounts and so on and there are聽
many different investment vehicles - cash, stocks,聽聽
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bonds, mutual funds, ETFs and so on. Based on聽
your objectives, constraints, and risk tolerance聽聽
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you can choose any of these or other聽
investment accounts and vehicles for each goal.聽聽
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This is not the end of your investment plan.聽
The next step is to set up a review schedule.聽聽
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Set up a quarterly or annual reminder on your聽
phone to come back and revisit this investment聽聽
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plan and make appropriate changes to聽
it. You should also visit this plan聽聽
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when there are significant life changes such as聽
birth of a child, change in marital status, change聽聽
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in employment status and so on. Rebalance your聽
portfolio as necessary. Rebalancing is a separate聽聽
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topic and I will discuss it in a later video. Once聽
you have a plan in place you can use it to hire an聽聽
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investment advisor or change investment advisors聽
or do it yourself. The template I've shared is a聽聽
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great starting point. Feel free to modify it聽
as you go along. The template is meant for聽聽
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educational and informational purposes only and聽
is not meant as a guarantee that you will achieve聽聽
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your goals just by completing the template. In聽
my next video I will talk about the foundations聽聽
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of investing, whether you should prioritize聽
paying off debt or prioritize investing.聽聽
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Make sure you subscribe to my channel and click on聽
the bell icon so you don't miss it. That's it from聽聽
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me for this week. As always don't forget to be聽
happy to be kind and to be your best self. Bye and聽聽
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here are some more videos I think you will enjoy.聽
i would really appreciate your hitting the like聽聽
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button and sharing this video with your friends聽
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