Investing is something millions of American families already do. According to the U.S. Securities and Exchange Commission, 76.23 million U.S. households held stocks or bonds in 2022. That represented 58.1% of U.S. households.
But owning investments and having an investment plan are two different things.
Many people want to invest but do not know where to begin. Others may already contribute to a 401(k) or own stocks without knowing how those investments fit into their larger financial goals.
At RB Wealth Partners, we believe investment planning can help bring purpose to those decisions. It gives you a framework for deciding where to put your money, how much risk to take, and what you are working toward.
What Is Investment Planning?
Investment planning is the process of creating an investment strategy based on your finances, goals, timeline, and comfort with risk.
Think of it as answering a few basic questions. What are you investing for? When will you need the money? How much can you invest? And how much market risk are you willing and able to accept?
Your answers help shape your investment choices.
For example, someone saving for retirement 30 years from now may invest differently than someone who plans to retire in five years. A person saving for a child’s college education may have another timeline altogether.
Investment planning connects your investments to the reasons you are investing in the first place.
Why Is Investment Planning Important?
One of the main reasons people invest is to grow their money over time. Keeping money in cash can serve important short-term needs, but inflation gradually reduces what each dollar can buy.
Investing provides the potential for returns that can help your money grow over longer periods. Those returns are not guaranteed, and investments can lose value. However, investing can play a role in growing wealth when it is approached with a long-term strategy.
Investment planning may also help you avoid making decisions based only on market headlines or short-term emotions. Instead, you have a plan built around your own goals and timeline.
How Can Investing Help You Grow Your Money Over Time?
Compounding is one reason starting earlier can make such a difference.
Compound growth happens when your investment earns a return and future returns are earned on both your original investment and previous gains. Over many years, this can have a large impact.
Imagine that you invest $10,000 and earn a hypothetical 6% annual return. After one year, you would have $10,600. If that money remained invested, future returns would be calculated on the larger amount.
Actual investment returns will vary, and some years may bring losses. The example simply illustrates why time can be such a powerful part of investing.
The longer your money is invested, the more opportunities it has for potential compounding.
What Goes Into an Investment Plan?
There is no single investment strategy that works for everyone. Your plan should reflect your financial circumstances.
When we discuss investment planning with clients, several factors may come into the conversation:
- Financial goals: What do you want your money to help you accomplish?
- Time horizon: How long can your money remain invested before you expect to need it?
- Risk tolerance: How comfortable are you with changes in the value of your investments?
- Financial capacity: How much investment loss could your finances reasonably absorb?
- Current finances: What savings, investments, debts, income, and other assets do you already have?
These factors can help determine how a portfolio is structured.
Understanding Asset Allocation and Diversification
Two concepts beginners often hear are asset allocation and diversification. They sound complicated, but the basic ideas are fairly simple.
Asset allocation refers to how your investment dollars are divided among different types of assets. A portfolio might contain stocks, bonds, cash, and other investments.
Stocks generally offer greater growth potential but can experience larger price swings. Bonds may provide income and can behave differently from stocks, though bonds also carry risk.
Diversification means spreading your investments across different companies, industries, asset types, or other categories. The goal is to avoid relying too heavily on a single investment.
Diversification cannot prevent losses. However, it can help manage the amount of risk tied to any one part of your portfolio.
Investment Planning Can Support Financial Stability
Investing is not just about trying to earn the highest possible return. It should fit within your broader financial life.
That distinction matters when thinking about financial stability.
For example, investing every available dollar while carrying high-interest debt or having no emergency savings may leave you financially exposed. Investment planning considers how investing works alongside your other priorities.
Your plan may change as your income, family, career, taxes, and goals change. Your investment strategy at age 35 may look quite different at 55 or 70.
This is also where investment planning and retirement planning begin to overlap. As retirement approaches, the focus may gradually shift from accumulating assets to determining how those assets can provide income. RB Wealth’s retirement income strategies address how savings, investments, Social Security, and other potential income sources can work together during retirement.
How Much Risk Should a Beginner Take?
There is no universal answer.
Risk tolerance is personal, but your feelings about risk are only part of the equation. Your financial circumstances and timeline matter too.
A younger investor with decades before retirement may have more time to recover from a market decline. Someone who expects to use their investment funds soon may have less room for large losses.
This is why investment planning should begin with your goals rather than with a particular stock, fund, or market trend.
It is also important to remember that avoiding all investment risk creates another type of risk. Inflation can reduce purchasing power over time. The goal is to determine what level and type of risk make sense for your situation.
When Should You Start Investment Planning?
You do not need to wait until you have accumulated a large amount of money to understand investment planning.
In fact, learning how investing fits into your financial plan can be helpful before you make major investment decisions. Starting earlier also gives your money more time for potential growth.
But starting later does not mean you missed your chance. Your strategy simply needs to reflect where you are today and what you hope to accomplish from this point forward.
A beginner guide can explain the basics. Your personal investment plan takes the next step by applying those concepts to your finances.
Build an Investment Plan Around Your Life
Investment planning is ultimately about more than choosing investments. It is about deciding what you want your money to do for you.
A thoughtful strategy can connect today’s financial decisions with long-term goals, from retirement and major purchases to leaving assets to the people and causes you care about.
At RB Wealth Partners, we help clients look at investments as one part of a larger financial picture. If you have investments but are not sure whether they support your goals, consider starting a conversation with our team about what your plan could look like.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This content is provided for educational purposes only and is not intended to represent any specific advice.