What makes a good investment plan?

As an investor, there are a couple of variables you must keep in mind to secure a solid investment and start on the right footing. The following article is the 101 pack that will introduce you to factors that make up a good investment plan.

Assessing Your Financial Situation

Before embarking on a safe and profitable investment journey, you must possess a sound understanding of your financial situation. Figure out your exact ability to invest and borrow. To do this, come up with a budget that specifies your disposable income once you minus the yearly expenses and emergency savings. A budgetary overview of this sort will go a long way in helping you assess and understand your financial status.

Next, you must be clear about the type of investment that will suit your situation. Will it be beneficial to invest in a more liquid asset with higher accessibility, such as the stock market? If cashing in quickly is not the plan, then investing with lower liquidity, such as savings bonds (government bonds) or retirement savings plans, may not be bad.

Setting Up Your Financial Goals

Defining your goals comes after assessing your financial situation. Your goals must be ambitious but realistic at the same time. They must reflect an understanding of your current financial needs.

To set up your goals, ask yourself a few basic questions. Why have you decided to invest? How much do you intend or hope to earn through this investment? Is passive income or retiring comfortably your agenda?  Are you looking to have quick returns, or are you willing to wait and see your investment grow? What’s your goal timeline?

While setting up your investment goals, consider three important variables: income, safety, and growth. Think of what kind of investments will provide you with an active income that you can live off. Safety involves making fairly risk-free investments that ensure you’ll at least maintain your current wealth. Multiple savings accounts or retirement accounts are the best starters. And finally, growth refers to the ability of your investment to derive value over time. Your goal may fall into one or all of these categories.

Determining Risk Tolerance

It is important to craft a good investment plan that specifies the variable of risk tolerance. This refers to how much risk you can take when investing. Typically, the younger you are, the greater your ability to recover from losses and the higher risk you can take. Your risk-taking curve should decline with age. Older people must pursue fairly risk-free investment plans and invest money upfront in ventures that ensure growth.

Although the riskier an investment, the more it has the potential for greater returns, there is a flip side. As much as it is tempting to take your chance with the stock market or real estate and capitalize on them, there’s always a possibility of losing money here. Safer investments, like saving accounts or corporate bond funds, may not get you quick returns, but they are a good choice for those willing to wait and develop their investments with time.

For this reason, you must chart a time horizon. This simply refers to establishing the period at the end of which you want your investment to bring returns or assets to liquidate. This could be a period until your retirement or a shorter tenure based on your financial situation.

By specifying the risk tolerance and time horizon, you will be able to reliably allocate your assets. You must create an investment portfolio that reflects your investment type, the percentage each type takes up in your profile, and the time horizon.

Securing Investments with Tax-free Returns



There are two things any investor hopes to achieve with their investments: saving taxes and generating income. Keep in mind that the former is the single biggest variable that costs you a portion of your returns.

It becomes even more important for people with a higher tax bracket to generate tax-free income. Tax-efficient incomes must be managed in a separate account, while investments otherwise should be kept in tax-deferred or tax-exempt accounts. Setting up tax-advantaged accounts such as the RRSPs, the Canadian equivalent of  401(k)s, is a good option, but there are annual contribution limits here.

There are two downsides to your returns with taxes. You are losing money with taxes, but you are also losing a potential opportunity to reinvest that money for larger growth. Remember that it is your after-tax dollars and not the pre-tax money that you actively spend and carry into retirement. Saving up money here is extremely beneficial, and that comes from making tax-efficient investments.

Some investments are inherently more tax-efficient than others. If you hope to break into the stock market, consider investing in exchange traded funds and index funds. This is because these result in lesser capital gains and subsequently lesser taxes. There’s the opportunity to generate higher capital distributions from trading securities with actively managed funds like mutual funds, which also yields more traffic.

Other investment types save you considerable taxes. One example could be investing in municipal bonds. Their interest income is not eligible for taxes at the federal level and sometimes also at the local and state level making them what many like to call “triple-free”.

Then there are also treasury bonds and Series I bonds (saving bonds). These are tax-exempt at the estate and local levels, making them tax-efficient. On the other hand, corporate bonds must be managed in tax-advantaged accounts.

An Investment that Allows you to Borrow

You are using leverage if you borrow to invest and increase your overall investment value. Traditionally, smart and seasoned investors have managed to generate sound income by leveraging money and investing them in EFTs and other growth stocks. The only thing to keep in mind is that your investment rates should be higher than your borrowing costs.

 Take care of the interest rates, your debt level, and ways you plan to pay back the loan you borrow for investment. Loans with higher interest rates or credit lines already tampered with high-interest debts mean that borrowing for investment may not be a great idea for you.

On the other hand, investments with higher liquidity and accessibility allow investors to borrow as they keep increasing in value. Ownership investments are the most volatile and hence the most profitable investments that quickly escalate in value. These include the stock market, money put into starting a business, and real estate. However, entrepreneurship and real estate are also the toughest types of investments and require more than just an understanding of how to use your money.  Real estate investment trusts (REITs) are a popular combination of real estate and the stock market.

Get to Know the Basics and Start Small

To make safer investments as a novice, you must start small and get the basics right. Differentiate between the various types of investments, such as ownership, lending, and cash; recognize tax-efficient investments, and chart short-term and long-term investment goals.



If you are interested in learning more about these strategies, please book an appointment today. Our team of experts at Innovative Wealth Strategy would be happy to discuss how we can help you grow your portfolio and protect your assets during these uncertain times. Get in touch with us now so we can help you achieve your goals!


About Innovative Wealth Strategies

Building a strong financial future requires careful planning and a dedicated team of experts to help you along the way. Our team of advisors at Innovative Wealth Strategies are dedicated to helping you achieve your dreams and goals, no matter what they may be. 

We take the time to get to know you and understand your unique situation before offering advice on how to best move forward financially. When it comes time for planning, we always put your needs first so that together we can create a plan designed specifically around achieving your goals while minimizing risk along the way. With our experience and dedication, we’ll work with you every step of the way to help you build the bright future you deserve.

We are located in Port Dover and service Hamilton, St Catharines (Niagara), Niagara, Burlington, Oakville and surrounding areas.