How To Create An Investment Strategy

Investment portfolios are as unique as the individuals that possess them

. If you take a dozen investors and peek inside their portfolios, you would be amazed by how much difference there is and how investment strategy varies among individuals.

There are several reasons for the difference. First, everyone has different financial goals. Secondly, some investors can accept more risk than others. And, lastly, investors are individuals with unique tastes and preferences.

Let's take a moment to focus on financial goals and how your goals affect your investment strategy. Pull out a sheet of paper and write down your financial goals as well as a realistic timeline of when you wish to see your goals become a reality.

Now, number your goals according to their importance. If retirement is more important to you than buying a vacation home in Tahiti, your primary goal would be retirement and the vacation home would be a secondary goal. Figure up how much money you will need to save and earn through your investments to reach all of your goals.

You might have to drop off some of your lower-priority goals if the price tag is too high or too unrealistic for your time frame.

Determine what your objectives are by analyzing your financial goals and your investment needs. The following are some objectives that might apply to your personal situation:

* Liquidity The ability to sell or cash in your investment quickly without penalty. * Increase Income The ability to increase your current income through interest payments. * Future Income The ability to increase future income. * Inflation Protection Cushion your investment against loss through inflation. * Capital Gain Large increase in value. * Safety Low risk of losing investment. * Diversification Investing in a wide array of investment vehicles to reduce risk and maximize gain. * Management The level of hands-on management that you can handle.

Once you understand your objectives, you need to decide which investment vehicles best suit your needs financially and objectively. There are three main types of investment vehicles: cash, bonds and stocks. Let's take a closer look at each:

* Cash Investments Cash investments are investments that have a high level of liquidity, meaning you can cash them in without fear of losing your money. Popular cash investments include passbook accounts, money market accounts, EE bonds, CDs, treasury bills and guaranteed investment contracts. * Bonds Bonds are, in essence, you giving a loan to the government or a corporation. Bonds are not liquid, meaning that you will have to wait for them to mature in order to cash them in. However, many do supply immediate income in the form of interest payments. * Stocks When you purchase stock, you purchase ownership in a company. The return on your investment is dependent on how well the company does. Stocks are risky, but they offer the most return potential.

Creating an investment strategy can be confusing at times. Be sure to do plenty of research, and don't be afraid to ask for help. After all, it's your money and your dreams that you are risking.

by: Dan Cavalli

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