Developing an investment strategy can seem like a daunting task. In fact, getting started with investing can feel like such a challenge that you never get started. You may think that investing for the future is so complicated that you will never be able to do it, or the only way to succeed is to hand the reins to a professional. What you may not know is that investing is not as difficult as you might think, and breaking it down into smaller and simpler steps can make it even easier. Here is a five-step strategy you can use you build a solid investment strategy for the future.
Step 1 – Get Started
Getting started is arguably the most important step in any investment strategy. Without that first step, nothing else can happen, so make a plan to get started right now. Even if you know nothing about investing and have no immediate plans for the money, move a few dollars from every paycheck into a savings account. The money will be safe while you go down the learning curve, and discipline you learn now will serve you well in the future.
Step 2 – Separate Short-Term and Long-Term Goals
Investing for the short term is very different from investing for long-term goals, so make sure you know which is which. If you are saving for a relatively short-term goal, like the down payment on a house or the first year of college tuition for a high school senior, your goal should be to keep the money safe. In that case, a savings account or money market fund is probably the best place for those dollars.
If your goals are longer term in nature, like saving for a retirement that could be decades away or building a college fund for a newborn child, you can look for more growth-oriented investments. Spreading those long-term funds among a mix of stocks, bonds and similar investments could give you the growth you need while allowing you to ride out any short-lived dips.
Step 3 – Develop a Comprehensive Budget
Before you can invest for either the short or the long term, you need to find the money, and that is where your budget comes in. If you have not already done so, grab your calculator and start working on a household budget.
Your budget should provide a top-down view of how much you earn, where your money comes from and where it goes. Be sure to include both fixed expenses, things like your rent or mortgage payment and utility bills, and discretionary spending, like dinners out, entertainment and the like. Once you have your budget in place, you can look for ways to cut back, and dedicate those extra funds to your new investment account.
Step 4 – Be Consistent
Consistency should be the watchword when investing for the future, so develop a schedule and stick to it. If you are investing in your retirement fund at work, the money will automatically come out of your paycheck, and you can use the same strategy for other forms of investment. If you want to invest in a mutual fund, have the money taken from your checking or savings account once a month. This pay-yourself-first strategy can be very effective, and it will help you become a consistent and disciplined investor.
Step 5 – Have Patience
Creating a solid investment strategy is not something that happens overnight, and you will have to be patient to make it work. The most successful investors are the ones who put money aside consistently month after month, no matter what the state of the market. The most successful investors are also the ones who exercise patience. They know that there is no such thing as a get-rich-quick scheme, and they are content to get rich slowly – trusting in hard work, dedication and smart choices to see them through.
Whether you are investing for the future education of your children or for your own retirement, it is important to develop a comprehensive strategy. As with any large and overwhelming task, breaking your future investment plans up into smaller and more manageable steps can improve the odds of success and help you save for a better future.