6 Steps to Build Smart Investment Strategy for Beginners

The first step that a smart investor should take towards his investment goal is to plan an investment strategy. A well-planned investment strategy not only makes it easier for you to achieve your goal but also helps in managing the risks associated with it.

It doesn’t make sense to drive without having a destination. Similarly, an investment without strategy also usually ends up in a mess. A well-planned smart investment strategy helps you in achieving your goal in the planned horizon with limited risks as per your risk profile analysis. If you are not having an updated risk profile analysis, it is recommended to get one from a certified advisor.

Building an investment strategy is usually not very complicated and can be done easily. To plan an investment strategy, you need to follow certain steps. The steps to follow for building a smart investment strategy include:

‍

Table of Content

6 Steps to Build Smart Investment Strategy for Beginners

1. Deciding Your Smart Investment Objective
2. Choosing the Required Time Frame and Smart Investment Capital
3. Having a Risk Assessment
4. Choose Your Investment Instrument
5. Ensuring Optimum Diversification
6. Track Progress of Your Investment Plan

1. Deciding Your Smart Investment Objective

The first thing you should do for making your investment strategy is to decide why you want to invest your money. The objective should have a defining purpose and the amount required to fulfill the desire. Your investment objective can be to gain returns by taking risks or to grow your wealth or to safeguard wealth while ensuring higher interest on it. Another important type of the investment objective can be if you are saving money to meet any fixed future expense, for example a foreign trip or a wedding or child’s college. These all can be the objectives of your investment strategy.

Your objective should be very clear and should adhere to it. There can be instances when you need to alter your objective, in such a case you should immediately apply appropriate changes to your investment as well.

2. Choosing the Required Time Frame and Smart Investment Capital

After you have decided your investment objective, the next step is to decide in how much time do you plan to achieve it and how much money can you spare for your investment on a monthly basis. Time affects the interest you will earn out of the investment you make. Also, there is an added factor of inflation which reduces your purchasing capacity and reduces the value of the money sitting with you idle in your bank account. If you are planning to invest in one go then you must arrange for the capital required for the lump sum investment.

The other option with you is to make a monthly payment towards your investments in the form of SIPs. SIPs or Systematic Investment Plan can be a good option for individuals who do not have bulk capital available for investing but still want to make the most out of market movements.

3. Having a Risk Assessment

The next step which directly links to the investment part is your risk capacity and risk appetite. Some investment options like stocks or mutual; funds have inherent risk involved, but also have a potential for return. Meanwhile other short term investment options like bank fixed deposits, bonds or debentures do not need you to take risks as they are safe investment options and the returns are guaranteed. The asset class which is best suited for you will depend largely on this factor.

Your risk profile will be evaluated as the foremost step if you are using the services of a investment advisor. Risk profile changes with numerous factors including your assets, liabilities as well as your age. It is very important to have your risk profile updated because all these factors are destined to change with time.

4. Choose Your Investment Instrument

After you have understood as to how much risk you can take, you should come to this step. The steps mentioned above would eliminate a lot of schemes which might appear lucrative to you at first. There are a lot of different options that as an investor you can choose from, to fund your investment objective. This includes bank FDs, company FDs, debentures, stock market investments, post office schemes etc. To invest in each of these options, there are separate routes and different features such as the investment term, liquidity, risk, potential reward etc.

5. Ensuring Optimum Diversification

It may happen that you might choose to opt for multiple investment instruments at the same time, which is completely fine and is in fact recommended. It is said that you should not put all your eggs in one basket and same holds true for investment options as well. You should not invest all your money in only one scheme. Instead, you should invest in different schemes and different sectors so that if one investment goes bad, your entire capital does not suffer.

You can choose multiple options as per your risk profile from the ocean of investment options available in the market.

6. Track Progress of Your Investment Plan

Once you have invested money and it has started working for you, you should not forget to keep a regular check. Investments in instruments such as stock markets need regular monitoring, and rebalancing if needed. If you feel that certain asset classes are not performing well, you can remove your funds from that asset class and invest it elsewhere in a safer place. You should this at least on a monthly or a quarterly basis for your investments which do not have a lock in period. It helps in minimizing risk and ensuring optimum returns for you.

ConclusionAfter following these steps, you will have a smart investment strategy in place which will be well suited to your needs and investment objectives. Always remember that each person has unique requirements and financial needs hence each person investment plan would be unique and different. There is no ‘one size fits all’ strategy when it comes to investment planning. Hence, if you are a beginner, you should take help from an investment advisor who can guide you in this journey and personally help you with your investment strategy.

‍