Investment Planning

INVESTMENT: The use of money for the purpose of making more money in order to gain income, increase capital, or both.

  • Investment Planning is only part of FINANCIAL PLANNING. It’s concentrated on the central definition of what an investment is, as stated above, and is typically the place where most people spend the majority of their time when it comes to planning financially.


INVESTMENT PLANNING: The core of investment planning is one’s asset allocation. A well derived asset allocation can be achieved after one discusses more specific issues of financial planning such as goals, objectives and needs. Other influences such as tax considerations and legal structure are all part of financial planning and can strongly impact investment planning, strategy, decisions and execution. Listed here are a few commonly referred to theory’s that drive the investment planning process and ultimately its execution.

Asset Allocation: An investment strategy that aims to balance risk and reward by taking into consideration time horizon, tolerance for risk and apportioning a portfolio’s assets to specific classes of assets in order to meet financial planning goals, objectives and needs. Asset Class: an asset class is a general term for investments with similar return, risk and time horizons. Three main asset classes are equities (stock), fixed-income (bonds), and cash and equivalents. Other common asset classes are real estate, commodities, private equity and collectibles often referred to as alternative asset class.

  • Strategic Asset Allocation:  A long range plan for a portfolio that takes into consideration overall long term goals, objectives and needs. Assets are apportioned generally by a percentage to each appropriate asset class with respect to that asset class’s long run mean rate of return. The strategic allocation typically is not altered to take into account short-term issues, such as market conditions. Instead the portfolio is rebalanced periodically to conform to the overall strategic allocation. Strategic allocation evolves as time horizon to achieve goals, objective and needs changes.


  • Tactical Asset Allocation: In contrast to strategic allocation, tactical asset allocation attempts to capitalize on changing market conditions. The overall asset allocation will be changed frequently in the short term but the overall strategic asset allocation is not abandoned from a longer term perspective.


Diversification: True diversification means to reduce risk by investing in a variety of assets that have a low correlation of return to each other. Most commonly referred to as “not having all your eggs in one basket.” Diversification can be achieved many ways within asset classes, amongst asset classes, by sector, by size, by industry and so on. The idea is not to have all of your money exposed to the risk of one single investment.

Dollar Cost Averaging: investing in equal monetary amounts regularly and periodically over specific time periods (such as $100 monthly) in a particular investment or portfolio. By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.

Rebalancing: is the action of bringing a portfolio that has deviated away from one's asset allocation back into line. Under-weighted securities can be purchased with newly saved money; alternatively, over-weighted securities can be sold to purchase under-weighted securities.



Example Asset Allocation


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