Investing in the capital market is like a 2 edged sword. You can make a lot of money; you also stand the risk of losing all your money. Even during times of boom when everybody is making money, some are making more money than others. The reverse also holds true during a market down turn. So what differentiates a successful investor from the average one? Simple, it is investment planning. Here I am going to show you how to create your own investment plan.
- 1. Determine your investment appetite.
Before you begin to invest, it is important you understand your level of risk appetite. Your risk appetite determines the type of stocks you pick or investment decisions you make.
Low risk appetite: You are safer with government bonds and treasury bills.
Medium risk appetite: You are safer with stocks of blue chip companies, companies with years of good stable performance.
High risk appetite: You will favour start ups and relatively young companies that haven’t proven themselves but have potential for explosive growth.
- 2. Decide on a time frame
You need to decide how long you are going to hold your investments in any particular stock or instrument. The three time frames available are:
Short term: Less than 1 year.
Medium term: Between 1 to 5 years.
Long term: Over 5 years.
- 3. Set performance targets
After deciding your time frame, you then choose your target for your portfolio in terms of performance. At the end of every year or any other suitable period defined by you, you measure the portfolio’s performance against the target. The most common target is annual growth rate. Please be reasonable when setting your targets. It must be achievable under normal conditions.
