Page 45 - Workbook3E

Plan Your Investment Then Invest in Your Plan
D Plan Your Investment
then Invest in Your Plan
“A lot of people who are worrying about the future ought to be preparing for it.”
~ Unknown
The purpose of an investment plan is to successfully maximize the return on your investment. Once you’ve defined your investment goals and plan... determined the limits of your risk tolerance... you begin to invest your capital to build a profitable investment portfolio. The following steps may help you develop a workable investment plan.
1 Own More—Risk Less
Smart investors diversify investments. You invest in different types
of assets. This strategy protects you against major drops in any one investment, market, or industry. When investments are volatile, moving
up and down in value, some investments lose value while others realize large gains.
For example, if you own stocks, bonds, and money market instruments, you won’t be as vulnerable to a drop in the stock market as an investor who owns only stocks. If you invest in gold, fine art, and collectibles, you won’t be as exposed to risk as you’d be if you only invested in gold.
A word of caution about mutual funds should be mentioned. Sometimes, investors believe they have enough diversity in their portfolio simply by owning hundreds of shares of a mutual fund. Usually, a mutual fund diversifies its investments as a hedge against
risk. But, as an investor of a mutual fund, you may be vulnerable to the risk of fund mismanagement or excessive administrative fees.
REMEMBER: No single investment can meet all your needs through every phase of your life. It’s important to create a flexible, diversified, investment program that can be modified as you grow older or your needs change.
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