How to get started on an investment plan
FINANCIAL FOCUS
A successful financial life is like taking a road trip: unless you know where you want to go, you're not going to get there.
Just like you would plan a trip, you should map out your finances. Realize your financial dreams requires goals and a strategy for reaching them. No matter what you want from your financial life, a good plan will get you there faster.
Get started by setting clearly defined long-term goals and time frames for reaching them. For example, do you want to save and invest for retirement, buy a home, put money aside for your children's education?
Your objectives must be realistic. If you set lofty goals that are unattainable, you'll end up frustrated, and perhaps give up on financial planning altogether. Don't expect to retire in luxury if you live a modest lifestyle or buy a mansion on an average salary. And keep in mind that it will take many years to reach some of your goals-including saving for retirement and financing your children's postsecondary education.
You can ensure objectives are realistic by assigning them a dollar value. Once you know exactly how much money is required, you can determine how much to save and invest, and the level of annual investment returns required to meet your targets. The wealth you accumulate will be a function of the amounts you regularly set aside and the returns that money earns.
You'll be able to execute an effective savings and investment strategy only after you establish a firm foundation for your financial life. This foundation is the money you need for basic necessities such as food, shelter, insurance coverage and a cash fund for emergencies. What you have left over after your day-today needs are met is your potential investment pool. In other words, it's the cash that you can put toward long-term goals.
Not only must you determine how much to invest, you should have a strategy for ensuring cash gets into your investment account. One of the best ways is to set up a preauthorized contribution (PAC) plan. With a PAC, you invest regularly during the year through automatic withdrawals from an account at a bank or other financial institution. The money goes into your RRSP or other investments.
You also need to structure an investment portfolio so it is capable of meeting your objectives. Choose investments that will generate the returns you require, at a risk level you're comfortable with.
Your portfolio should be diversified among the basic asset classes-cash and cash-equivalent investments, fixed-income and equities. This will provide exposure to greater returns potential and protect against the frequent ups and downs typical of a narrow range of investments.
A financial advisor can help you define your goals and strategy, as well as choose appropriate investments. A professional can also help you regularly review your strategy and investment performance to ensure you're on track to reaching your goals.
Kevin Dorey is a Financial Advisor with Edward
Jones. Based In Tantallon, Kevin specializes in helping individuals reach their serious, long-term investment goals. Edward Jones is a member of the Canadian Investor rotection Fund.