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What is the Best Way to do Personal Investment Planning?

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“Tell me about the best investment plan!”

“I heard my friend talking about XYZ investment, do you think it’s good?”

  • These are just two examples of commonly asked questions on investment.

Yes, I get it. You don’t want to lose out on the “best” investment deals in town.

However, before you start investing, do ensure that you have built a solid financial foundation for yourself.

So how do you know which one is the best investment for you?

All financial solutions are designed for a target audience. The best investment is simply the one that suits you in the following three areas combined:

1. Investment goal
2. Investment time horizon and risk profile
3. Investment vehicle

As everyone is unique, there’s no doubt that an investment plan should be 100% tailored to your situation.

Blindly taking recommendations from friends (who don’t understand your financial situation) could be detrimental to your finances.

It’s just like self-medicating without a proper diagnosis from a health professional, but in this case, you’re putting your financial health at risk!

Investment goals

“Begin with the end in mind.” – Stephen Covey (Author of 7 Habits of Highly Effective People)

It’s important to know what you’re trying to achieve, because without a clear goal, how do you plan for it?

Take a moment to think.

What is your goal in investing?

– To build up emergency funds
– To buy a dream house
– To provide for children’s education
– To further studies
– To migrate overseas
– To support family
– To prepare retirement funds
– To start a business
– Others

Why is this goal important for you? (Your why in investing)

– To prepare for unexpected expenses
– To set up a family
– To have peace of mind
– To have freedom / choices
– To have a comfortable retirement life
– Others

Finding out your why in investment is crucial, because it drives and guides you towards the future/ bigger picture that you are seeking to create.

Investment time horizon and risk profile

Once you have defined your investment goal, the next thing to work on is your investment time horizon and risk profile with regards to investing.

Your investment horizon:

When do you need this money?

– Short-term (1 – 2 years)
– Mid-term (3 – 5 years)
– Long-term (more than 5 years)

To define your risk profile, you may ask yourself some questions:

1. How do you feel about a 20% loss in your investment?
2. What is a decent investment return for you?
3. What will you do during a market crash (sell off investment, buy more or do nothing)?

Investment vehicle

Lastly, what kind of investment vehicle suits you? Undoubtedly, suitable investment tools should fulfil your defined investment goals, risk profile and time horizon.

Investment tools come with three fundamentals: capital preservation, liquidity, and returns.

investment plan investing risk profile

There’s always a trade off in any investment tool in terms of capital preservation, liquidity and return. Just like life, we can’t have everything we want. We have to give up something in order to get something else.

If you want capital preservation and high liquidity in your investment, you will have to accept that returns will be low.

If you want good returns and liquidity in your investment, you will have to accept that there will be absence of capital preservation.

If you want capital preservation and a good return on your investment, you will need to give up liquidity.

As you can see from above, there is no single investment that can give you capital preservation, high liquidity and high return at the same time. If you encounter one, there’s a good chance that it’s a scam – please do check with Bank Negara Malaysia on said investment!

Let’s use an example on finding the right investment for you. Assume that you have defined the following:

investment plan investing risk profile - investment plan investing risk profile

If your goal is to save up for an emergency fund, your investment vehicle should come with capital preservation (keeping your saved money free from volatile or fluctuating markets) and high liquidity (you need access to your money as soon as possible for unexpected events). 

So, suitable investments for building your emergency fund can include:

1. Bank – high interest saving account/ saving account
2. Bank – fixed deposit
3. Fixed unit price unit trust fund

Please note that bank high interest saving account/ saving account and fixed deposit are protected by PIDM but unit trust funds are not protected by PIDM.

You may repeat the steps discussed above to design your best investment plan that’s tailored specifically to your needs.

All in all, there is no single best investment plan, because the best one is the one suits you the most! You have to define what you want, what you like and have a plan that you are comfortable with.

It’s incredibly dangerous to just follow the crowd and invest blindly, because that means you’re jeopardising your financial future.

If you feel lost when planning your financial future, you may consider investing in a financial professional.

A financial professional would not only develop a roadmap for you, but will also provide advice as unexpected financial issues arise in your life and bring you nearer to your financial goals.   

About the author

Kuah Soo Yee is a Licensed Financial Planner (CFP) who is passionate about helping people make sound financial decisions and achieve their financial goals, and recently launched her own app. Her personalised strategies and advice have helped many to gain better clarity and take firm control of their financial future. She can be contacted at soo.yee@ipp.com.my

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