Securing Financial Independence Through Investment Planning

Investments are a great way to increase your income potential

. Not only will you earn more interest on investment accounts than you would on regular savings accounts, the amount of money that you could potentially earn over the long term is limitless. With proper diversification and timely decisions, you can secure a financially independent future through investment planning.

The key to successful investment planning lies in diversification and selection. Most financial planners agree that your time frame is the number one consideration when selecting investment vehicles. If you plan to retire in 25 years, you will have more investment options open to you than you would if you need to pull out of the investment in 10 years. There are several other factors that will limit your selection as well:

* Your age

* The amount of money you can invest

* Your cash flow needs

* Your need for liquidity and flexibility

* The amount of money that you need to earn

* The amount of risk that you can take

Let's take a closer look at each of these considerations.

Young people often have more options available to them than the older investor. Age affects many factors including the ability to recover from a risky investment and the ability to invest in long-term investments. However, some short-terms goals are the same regardless of age. If you plan to invest to reach a five-year goal, age is irrelevant.

If you only have $20,000 to invest, you might not want to invest it in a non-liquid investment such as real estate. If you have $500,000 to invest, putting $20,000 in real estate is a great idea. Always keep in mind how much you can afford and allow for diversification. Choose from a wide variety of liquid, semi-liquid and illiquid accounts.

Cash-flow needs and the need for liquidity go hand in hand. Some investment accounts will supply you with income each month in the form of interest and dividends. If you need extra income, these types of investments are ideal. If you need to be able to cash out quickly, liquidity is vital.

In order to reach your goals, you need to figure out the rate of return that you need to achieve your goals. Once you have settled on a certain percentage, look for investment opportunities that deliver.

Low-risk investments typically offer lower returns. High-risk investments usually return at a higher rate; however, you could end up losing money. Risk tolerance is both a personal and financial decision. Some people simply cannot risk money comfortably. Others may need to minimize risk due to a looming retirement.

Keep all of these factors in mind when you begin collecting ideas for your investment portfolio. Do not be afraid to ask for help if some things seem unclear to you. Investment planning is tricky; you need to be sure you are doing it correctly in order to minimize loss and maximize your return.

by: Dan Cavalli

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