Investment Planning Definition & How To Prepare For Your Future

Investment Planning Definition
Article Overview

‍Investment Panning Definition

Investment planning is the process of aligning your financial goals with your investment resources. It is the main component of financial planning which puts to use your savings and ensures you earn more money through investment. The first step to a successful investment plan is identifying your financial goals and objectives so as to direct you on the type of investment vehicles you can use to multiply your financial assets to meet these goals and objectives. Having a plan for your investments gives you a sense of direction and purpose so you can get maximum return on your investments. Investment planning also helps you decide on the best investment strategy to meet your financial goals.

Why Is Investment Planning Important?

Having something to fallback on in times of crises or post-retirement is a major reason to have an investment. It is never advisable to spend every cash you have whenever it comes in. it is prudent to save and invest a percentage of your income, no matter how little. Financial advisors will always recommend that you have your money invested in different portfolios to provide for you and your loved ones. To have a lucrative investment, you need to have a solid investment plan that will ensure your financial and investment goals are achieved. Investment planning is important for the following reasons:

1. Definite Goals and Objective ‍

When you include an investment plan in your financial plan, it helps you to think and identify your future financial goals and objectives. The kind of lifestyle you want to live in the future will determine the best type of investment portfolio that will meet your financial goals. It gives you an idea of the bigger picture you want for yourself.

2. Direction

Having an investment plan will give you a sense of direction in your finances. You will be able to choose the best investment and every financial decision you make will be intentional and purposeful.

3. Investment Strategy Formulation‍

Having an investment plan will help you determine the investment strategy that best suits your financial goals. You will be able to align your income with your savings and determine how you move money around to grow your investments. It helps you create an investment plan that will be comfortable for you by accommodating your present needs.

4. Investment Portfolios

An investment plan will help you review your investment strategies and monitor how well your investment portfolios are doing. With a proper investment plan, you can always review and change your strategies if there are indications that they won’t help you meet your financial goals.

5. Financial Security

‍An investment plan protects your future both in the short term and long term. It guides you on how to save and invest to secure your future and that of your loved ones.

6. Financial Awareness

One benefit you get from investment planning is the level of financial awareness it gives you. In order to choose the right investment plan for your financial plan, you will have to be familiar with quite a number of investment vehicles that will improve your financial knowledge. You will know investments that are appropriate for the short term and in the long term. It will give you a whole new perspective on budgeting and how you can improve your financial situation and lifestyle.

5. Controlled Spending

In developing an investment plan, you will have to assess your current financial situation to enable you to save and invest a portion of your income. It also puts a cap on your expenses so as to meet up with your saving and investment plans.

What Is The Difference Between Investment Planning and Financial Planning

Investment planning is known to be a subset of financial planning. The major difference between these two is the area of focus. Financial planning focuses on a comprehensive aspect of your finances like estate planning, and retirement planning. While investment planning focuses only on how you will grow your savings through different investment vehicles. Your investment planning is a key determinant of how successful your financial plan will be.

A financial plan helps you evaluate your current financial status and helps your structure your savings, budget, taxes, insurance, retirement, and estate plan. An investment plan, on the other hand, helps you create and evaluate your investment strategies that will multiply your assets and secure your future and that of your loved ones.

What Is Systematic Investment Planning

Systematic investment planning refers to a investment strategy that allows investors to contribute periodically instead of investing lump sums. The amount to be contributed is usually fixed and debited at pre-determined intervals. This type of investment relieves the investor from speculating in different volatile investment markets.

A systematic investment plan (SIP) is appropriate for retail investors who do not have the financial might to pursue exclusive investment vehicles. It also frees an investor from active investment monitoring which will be handled by the investment house handling the mutual fund portfolio. It is a flexible investment plan which you can discontinue anytime, increase or decrease your contribution at your convenience. SIPs are suitable for long-term investments as you can invest small amounts over a long period. These contributions can be biweekly, weekly, monthly or quarterly.

What are The Five Steps Of Investment Planning

It’s one thing to know you need an investment plan, it’s another thing to develop a viable investment plan. It is advisable to seek the help of financial advisors and tax lawyers to help structure your investment plan. After a bit of research into what investment planning is, there are further steps to take to ensure your investment plan is solid. Here are the first 5 steps to take when developing your investment plan:

1. Evaluate Your Current Financial Situation

‍Investment planning is all about securing your future and to do that, you need to know where you stand financially today. Evaluating your current financial situation gives you an idea of what you have to kick-start your investment plan. It will also help you structure your income and expenses to make room for investment capital. This step gives you a clear picture of where you are financially and it can also help you identify your desired financial lifestyle. You are also able to determine your investment capital after evaluating your financial situation.

2. Identify Your Financial Goals and Objectives‍

This step is quite important because it will determine how you will structure your investments in different portfolios. After assessing your current financial status, set a financial target for yourself in the short term and the long term. You could pen down the desired worth of your asset in the short term and long term. This step will enable you to identify the best financial strategy to adopt that will grow your assets to meet your financial target. Some of the things to consider when outlining your financial goals include your post-retirement lifestyles, your real estate goals, your streams of income, and whether you want to create generational wealth for your loved ones.

3. Decide On Your Risk Appetite

As the saying goes, the higher the risk, the higher the reward. Investing is all about risk, nothing is ever guaranteed. Low-risk investments usually have low returns and you have to decide what your risk appetite is for the investment journey. Most financial advisors will recommend that you spread your investment portfolios to combine low-risk and high-risk investments to strike a balance in your portfolio. Your financial goals also directly relate to this step because that determines how aggressive your investment portfolios will be.

The key is to set realistic goals for yourself, using your current financial status. You can always review your investment plan when your financial situation improves. The more your income, the more you can afford to invest. Your retirement age also determines your risk appetite. For those aiming to retire young at the age of 40 or below, depending on how old you are and how much you make, you may have to invest aggressively to be able to sustain the post-retirement lifestyle you desire. When it comes to investment and risk, it’s not about how quickly you reach your financial goals but reaching them that is important.

4. Decide on The Type of Investments

This step is crucial to the survival of your financial plan and it is what determines how soon you achieve your financial goals. There are different types of investments that you can put your money to help achieve your goals. It is advisable to consult a financial advisor at this stage because every investment portfolio has its pros and cons depending on your financial goals. There is also the issue of tax which may hinder your investment from growing at the desired rate. Some of the common types of investment include:


This gives you a stake in the ownership of any public company offering it. The returns on shares are known as dividends or you can sell your stakes when it has appreciated over a period. The stock market is known to appreciate by 7% annually or more. That is a potential value appreciation of whatever shares you own.

‍Investment Funds‍

These are known as a basket of stocks managed by a designated fund manager. This option is for those that do not have time in taking the investment decisions themselves. A known disadvantage is that the fund manager will be paid commission from your returns which may affect your total profit.


Bonds are like loans to the government or individual companies in exchange for returns over a long period. This is a long-term investment with a modest return of 2% to 3% annually. For those planning to retire at a young age, this may not be the best option.


Annuities are usually referred to as a supplement to the normal retirement income. It is a contract between an investor and an insurance company whereby the investor pays a lump sum in exchange for periodic payments to the investor after retirement. The payment interval will be pre-determined.

The scope of investment portfolios you can choose from is wide, depending on what your financial goals are and your level of income. You can seek professional help to choose the best portfolio for you.

Develop a Timeline‍

This step is also important because it gives you a sense of purpose in every financial decision you make. Your timeline should start counting from the moment you take the first step. This step ties directly to your goals and investment portfolios. If you’ve set a specific financial target for yourself, having a timeline will help you know when to change strategies or investment plans if it appears you won’t be able to meet your goal on time.


Investment planning means putting your money to good use so you can reach your financial goals. It involves deciding where to invest your money, how much to invest, and for how long, among other things.

The process of investment planning includes setting financial goals, determining risk tolerance, selecting appropriate investment options, and reviewing and adjusting the plan on a regular basis to ensure it aligns with your changing needs and circumstances.

The main goal of investment planning is to help people and businesses reach their financial goals by making smart investment decisions that balance risk and return and take into account their personal circumstances and the amount of time they have to invest.

The components of investment planning include setting financial goals, determining risk tolerance, choosing suitable investment options, diversifying your portfolio, and regularly reviewing and adjusting your investments as necessary.

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Written by:

Jim Pan, CFP, MFA-P

Jim is a dedicated, fee and advice only independent Certified Financial Planner with a focus on supporting healthcare business owners during their crucial growth phase. His expertise lies in offering comprehensive solutions to minimize taxes while embracing a holistic approach. With a career spanning back to 2010, Jim has established a strong presence in the financial industry. He proudly holds a range of designations, including Certified Financial Planner (CFP), and Master Financial Advisor - Philanthropy (MFA-P). He is currently pursuing additional designations and qualifications to better serve his clients and community. Beyond his qualifications, Jim is a member and an esteemed participant in the Million Dollar Round Table (MDRT), an exclusive global association comprising the top 1% of financial advisors. Jim's commitment extends to the community, where he spearheads numerous charitable fundraising events and plays an active role in enhancing the well-being of others. Additionally, he has contributed significantly by serving on the board of the Canadian Mental Health Association in Vancouver. Currently, he volunteers with Junior Achievement of British Columbia (JABC) to present personal finance topics to youths.

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