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How To Build An Investment Plan That Works For You?

Updated On Jan 11, 2022

To make a solid investment plan, you have to know why you are investing. Once you know the objective, figuring out which choices are most likely to get you there becomes easier. The five questions below will help you build a sound investment plan based on your goals.

Making an investment plan involves more than just choosing a few stocks to put money in. You have to consider your current financial situation and your goals for the future. It’s also important to define your timeline and how much risk you’re willing to take on in order to determine your optimal asset allocation. All of these steps help to mitigate any risk you might encounter in the stock market. In turn, planning before you invest your hard-earned money is extremely wise.

How To Build A Good Investment Plan?

1. Review Your Finances

Before you invest, review your financial situation. Write down what you owe (your debts) and what you own (your assets). Writing down what you own and what you owe will help you see what savings you can invest. It will also help you see how you can diversify.

Then write down your income and expenses. Our budget planner can help you track what money is coming in and going out. This will help you see how much you can put toward investing regularly.

2. Set Your Financial Goals

Write down your financial goals. For each goal include how much you'll need and how long you have to reach it. Then divide your goals into:

  • Short term (0 to 2 years)
  • Medium-term (3 to 5 years)
  • Long term (5 years or more)

Setting and defining your financial goals will help you pick the right investment to reach each goal

3. Understand Investment Risks

Investment risk is the likelihood that you'll lose some or all the money you've invested. This can be due to your investment falling in value or not performing how you expected. All assets carry investment risks — some are riskier than others. Risks that can affect the value of your investment include:

Interest rate risk: Interest rate changes reduce your returns or cause you to lose money. This is a key risk for fixed interest investments.

Market risk: An investment falls in value because of economic changes or other events that affect the entire market.

Sector risk: An investment falls in value because of events that affect a specific industry sector.

Currency risk: Currency movements impact your investment and returns. This is a key risk for overseas investments, Australian companies with overseas operations, and investments that have foreign currency in them.

Liquidity risk: You can't sell your investment and get your money when you need to without impacting the price in the market.

Credit risk: A company or government you lend to will default on the debt and be unable to make the repayments.

Concentration risk: If your investments aren't diversified, poor performance in one investment or asset class can significantly affect your portfolio.

Inflation risk: The value of your investments doesn't keep pace with inflation.

Timing risk: The timing of your investment decisions expose you to lower returns or loss of capital.

Gearing risk: Using borrowed money to invest can magnify your losses. Your investments may fall in value but you still have to pay the remaining loan balance and interest.

4. Risk And Return

As a general rule, the higher the expected return on an investment, the higher the risk of the investment. The lower the expected return, the lower the risk. Lower risk means the returns are more stable and there is a lower chance you could lose money.

For example, a government bond is a low-risk investment. It pays interest, and the value of the investment doesn't change too much in the short term. Shares are a higher-risk investment. The price of a share can move up and down a lot over a short amount of time. There are no shortcuts to investing success. The combination of high returns and low risk doesn't exist.

5. Know Your Risk Tolerance

Your risk tolerance depends on your ability to cope with falls in the value of your investment. Your age, capacity to recover from financial loss, financial goals, and your health are some of the factors that may influence your risk tolerance.  Each investor's risk tolerance is different and for different financial goals that have different investment time frames, you may be willing to accept different levels of risk. It's important to understand your risk tolerance and find investments that are aligned with it.

6. Research Your Investment Options

To find the right investments, you need to think about:

Return — what is the expected return on the investment? Does it come from income or capital growth?

Time frame — how long do you need to invest to get the expected return?

Risk — what types of risk does the investment involve? Are you comfortable taking on these risks?

Access to cash (liquidity) — how long will it take to sell the investment and get your cash out?

Cost to buy and sell — how much will it cost to buy and sell the investment?

Tax — how much tax will you pay on earnings (income and capital gains) from the investment?

7. Build your portfolio

The way you structure your portfolio will depend on your financial goals, investing time frame, and risk tolerance. For short-term goals, lower-risk investment options are better. Consider investments like a savings account, term deposit, or government bonds. These investments are a lower risk as they're less likely to fall in value and you can access your money.

For longer-term goals, investments with higher returns such as shares and property can be better. These investments are higher risk but you're investing long term, so you can ride out any short-term falls in value.

8. Monitor Your Investments

It's important to review your investments regularly to make sure they're performing as expected. And check whether you're on track to reach your financial goals. See, keep track of your investments.


It's important to make sure you diversify your portfolio across different asset classes and within each asset class. This protects you against losing too much if the value of one investment falls. See diversification for how this strategy can help you.

You may also like: How Term Insurance Plans Give You Financial Stability?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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