A Beginner's Guide to Investment Planning — Tally (2024)

Chris Scott

Contributing Writer at Tally

July 23, 2021

Over the past 140 years, theaverage 10-year return of U.S. stocks has been 9.2%, according to data provided by Goldman Sachs. While the stock market is not the only investment tool available, it demonstrates just how important it can be to come up with aninvestment strategyandfinancial goals.

Because investments and their earnings compound, the sooner you can begin investing the better off you will likely be in the long run. Asfinancial guru Suze Orman tells CNBC, “I would much rather see you invest a specific amount of money when you are young, a lesser amount of money, than waiting and having to invest five or six times [as much] when you are older.”

No matter where you are on your financial journey, the right time to start planning for your future is now. That’s why we’re here today to walk you through the importance ofinvestment planning. We cover the basic fundamentals as well as howinvestment planningworks and the things you can do to get started. By the end of this article, you should have a much better idea of how to get started crafting both yourshort-termandlong-term goals.

What isinvestment planning?

Broadly speaking,investment planningis the process of coming up with goals and strategies and building a plan of action to achieve them.Investment planningfalls under the umbrella offinancial planning.

Today, there are many different assets that you can use to build aninvestment portfolio, including:

A key component ofinvestment planningis determining yourrisk tolerance. Yourrisk toleranceis a measure of how much risk you are comfortable taking with your assets. Typically, the greater the risk, the greater the potential reward — but also the greater chance of loss. For instance, stocks can yield a tremendous amount of earnings during a given year, but the market could also tank and you could lose your entire principal investment.

Stocks are considered significantly riskier than, say, cash. Yourrisk tolerancewill determine yourasset allocation, or how you spread your money acrossdifferent investments. Though everyone’s situation is unique, manyfinancial advisorsbelieve thatdiversificationis crucialand that you should spread your money across multipleasset classes.

Working withfinancial professionalsandinvestment advisorscan help you better plan your investments. We’ll touch on that more in a bit.

Why isinvestment planningimportant?

Investment planningis important because it prepares you for your future. There’s a strong chance that there will come a time when you no longer work and earn a steady income. This could be because you chose to retire or because of something more unexpected, like a layoff or medical emergency.

No matter the reason, you need to be prepared with enough cash on hand to get you through your current situation or for the rest of your life. This is whyinvestment planningis so critical. Below is a breakdown of a few of the reasons why you need to considerinvestment planning.

Prepare for retirement

One study found that as many as64% of Americans are not prepared for retirement.Retirement planningis a key component ofinvestment planning. You need to make sure that you have enough cash on hand to cover your expenses and medical bills during retirement.

If you work with afinancial planner, you will sit down and come up with aretirement plan. Yourretirement planwill derive heavily from:

  • How long you expect to work

  • Your family health history

  • How many children you have and the expected expenses remaining

  • Your current debts and assets

  • Your financial life, such as your average monthly spending

As you move toward retirement, you may want to take on less risk. However, lower risk means reduced returns. The earlier you get started investing, thehigher riskyou can take. The market tends to grow over time and being in it for the long term allows you to worry less about marketvolatility. Investing now can allow you toproperly prepare for retirement.

Better understand your financial situation

Investment planningalso allows you to see just how much money you have readily available and your true net worth. As evidenced by the fact that 64% of Americans are unprepared for retirement, many people overestimate just how financially secure they are.

Aninvestment planallows you to properly evaluate your net worth so that you can better manage your income andbudget moving forward.

Provide a roadmap to your future

Investing for the first time can be overwhelming. Having a plan helps mitigate that. Knowing exactly whichinvestment productsyou should be targeting allows you to determine where you should be putting your money. It also provides savings goals that you can target and chase.

For instance, aRothIRAis aninvestment optionthat allows your earnings to grow tax-free. The maximum amount that you can contribute currently is $6,000 per year. Maxing out your Roth can be afinancial goalthat is easily measurable.

How doesinvestment planningwork?

A Beginner's Guide to Investment Planning — Tally (2)

If you would like todevelop aninvestment plan, you should conduct ample research before jumping in. Investing can be very rewarding, but you should not just throw your money anywhere.

You should strongly consider speaking with afinancial servicesorwealth managementcompany. These includebrokerageslike Fidelity and Vanguard, along with local advisors who may be in your area.

Yourwealth managementadvisor will better understand your intendedinvestment risk,short-termgoals andlong-term goals. They can craft a plan for you. You can choose to actively manage your money or allow these firms to do it for you. The firms may charge a fee, but they are professionals and can provide a trust factor that is not found if you are investing on your own for the first time.

What things do you need to do to startfinancial planning?

Before you develop aninvestment plan, you need to know a few things:

  • Your current income

  • Your monthly expenses

  • Your current net worth

  • Your current levels of debt

  • Your financial and retirement goals

  • Your risk tolerance

All of these factors will shape what you invest in. Having cash on hand will also make it easier to begin investing, though it’s not a necessity. You should also look into whether your employer offers a401(k) or health savings plan. These areinvestment optionsthat you may not otherwise have access to.

Another thing you need to do before crafting your long-terminvestment planis to reduce your debt. Getting out of debt is a critical step in setting yourself up for financial success.

Start crafting yourinvestment plantoday for a more secure financial future

A Beginner's Guide to Investment Planning — Tally (3)

No matter how old you are, there’s no better time than the present to develop afinancial plan. Though afinancial plancan encompass many financial elements, one of the most critical parts isinvestment planning.

Jumping into an investment is not something that you should do on a whim. You should speak with variousinvestment managementadvisory servicesorbrokeragesto better understand your financial situation. Not only will advisors look at your current financial picture, but they’ll also consider things like yourrisk toleranceto determine whichinvestment optionsare right for you.

Before you start investing, work to get your finances in order. You should be aware of your income, expenses and current net worth. Additionally, an important step in setting yourself up for financial success is getting out of debt.

Reducing your debt will allow yourfinancial advisormore flexibility wheninvestment planning. One potential option for reducing your debt isTally. Tally is an automated credit card payoff app that helps you pay down higher-interest credit card debt with a low interest line of credit. After reducing your debt, you’ll be in a good position to start working toward your investment goals.

As an enthusiast and expert in financial planning and investment strategies, let me provide insights into the concepts mentioned in the article authored by Chris Scott, a Contributing Writer at Tally, dated July 23, 2021.

The article primarily discusses the importance of investment planning and how it plays a crucial role in shaping one's financial future. Here's a breakdown of the key concepts mentioned:

  1. Average 10-Year Return of U.S. Stocks:

    • The article refers to data provided by Goldman Sachs, stating that the average 10-year return of U.S. stocks over the past 140 years has been 9.2%. This statistic highlights the historical performance of the U.S. stock market as a key investment tool.
  2. Investment Strategy and Financial Goals:

    • Emphasizes the significance of having an investment strategy and financial goals. It stresses the compounding nature of investments and encourages starting early to benefit in the long run. Suze Orman's advice is cited, emphasizing the advantages of investing at a younger age.
  3. Types of Investments:

    • Lists various assets that can be used to build an investment portfolio, including cash, equities, stocks, mutual funds, exchange-traded funds (ETFs), bonds, and real estate.
  4. Risk Tolerance and Asset Allocation:

    • Highlights the importance of determining one's risk tolerance, which influences how assets are allocated. The article notes that greater risk can potentially yield higher rewards but comes with a higher chance of loss.
  5. Financial Planning and Diversification:

    • Mentions that investment planning falls under the umbrella of financial planning. Diversification, spreading money across different investments, is considered crucial for managing risk.
  6. Importance of Investment Planning:

    • Discusses the critical role of investment planning in preparing for retirement and handling unforeseen circ*mstances, such as layoffs or medical emergencies. It points out that a significant percentage of Americans are not prepared for retirement.
  7. Retirement Planning:

    • Stresses the need for retirement planning, with factors such as expected working years, family health history, children, debts, and assets influencing the retirement plan. It suggests that starting early allows for higher-risk tolerance.
  8. Understanding Financial Situation:

    • Investment planning helps individuals better understand their financial situation, evaluate net worth, and manage income and budget effectively.
  9. Developing an Investment Plan:

    • Advises conducting ample research before investing and recommends seeking guidance from financial services or wealth management companies. These professionals can tailor a plan based on risk tolerance and financial goals.
  10. Starting Financial Planning:

    • Before developing an investment plan, individuals need to assess their current income, monthly expenses, net worth, levels of debt, and financial and retirement goals. The article also suggests looking into employer-offered investment options like 401(k) or health savings plans.
  11. Debt Reduction:

    • Emphasizes the importance of reducing debt before crafting a long-term investment plan, as it provides more flexibility for financial advisors during investment planning.
  12. Introduction to Tally:

    • Towards the end, the article introduces Tally as an automated credit card payoff app that helps users pay down higher-interest credit card debt with a low-interest line of credit.

In conclusion, the article serves as a comprehensive guide, urging readers to start financial planning and investment early, emphasizing the role of professionals in crafting personalized investment plans, and underscoring the importance of understanding one's financial situation and managing debt for a secure financial future.

A Beginner's Guide to Investment Planning — Tally (2024)
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