How Do I Create an Investment Plan?

Written by Joe Snyder

Thursday, November 8th, 2018

We can all probably think of times when we've been tempted to put off tasks that seem like a lot of work. But when it comes to planning for financial goals, putting it off can be detrimental to you in the short term, and more importantly, detrimental to your end goal.

Let’s back up a bit. What's an investment plan? An investment plan, quite simply, includes setting goals, creating an investment mix that matches those goals, and then coming up with a disciplined approach to maintaining that plan. Your investment plan includes your initial investment amount, your monthly contribution amount, and your portfolio rebalancing parameters.

Let’s say you have two children, a three-year-old and a seven-year-old, and you want to start saving for their post-secondary education. You know they'll need to begin using that money in about 15 years and 11 years, respectively.

This is the first step in creating your investment plan — knowing what goal you’re saving for.

Step two is setting up an automatic savings plan. Let’s say you have $5,000 currently saved for them, and plan on saving $200 per month to start. In 11 years, when your first child starts post-secondary school, this means you'll have contributed over $31,000 at that point, and with a hypothetical return of 4%, the investment would have grown to nearly $41,000. Keep in mind you’ll still have four more years of saving for your other child before they’ll start accessing the money.

(Also note that we’re not including any grant money you would have received if you were saving in an RESP. The Canada Education Savings Grant, also known as CESG, super-charges your savings, giving you an additional 20% match on your first $2,500 per child per year, to a lifetime maximum of $7,200 per child.)

Step three is deciding what to invest in. For longer investment time horizons, a mix of stocks and bonds might make sense, but as you get closer to using the money, you’ll want to become more and more conservative with your investments.

So really, that’s about it. Each of these three steps may change a bit based on your own circumstances, of course, but planning doesn’t need to be complicated. When setting financial goals, the three key questions to answer are:

1. What are my goals/objectives for the money? (i.e. When will I need it?)

2. How much will my initial investment and monthly contributions be?

3. What product(s) will I invest in?

This same sort of planning approach can apply to your retirement savings or any other savings goal. Again, it can seem a bit daunting to set up, but once you actually take a few minutes to answer the questions above, you can feel more confident that your money will be working for you — allowing you to focus on whatever it is you’d rather spend your time doing.

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