Question

Please share your process and Suggestions for starting an investment plan.

Answer 1

1. First you would need to look at your current age. This will help you figure out what sort of investment assets you can get into. If you are under 30 go for all equity investments if you are willing to take on the risk of equity shares. As you get older you can go with a blend of equity and fixed income for the less risk involved with fixed income investments. Maybe 90-10 between 30-35, 80-20 between 36-40 and so on.

2. Next I would opt sit and decide the industries I would like to invest into. Its good to invest in 1 stock from 1 industry and try to have a portfolio of 8 different industries. If you want to invest into a Mutual Fund then you would need to check out their current holding and see which industry they have maximum holdings and diversify between Mutual Funds using that. The number 8 is not fixed but I feel 8 is manageable, thats around 12.5% of your total investment.

3. Decide the time horizon of your investments as this will help you pick the kind of stock you want. If its around 5 years or so then growth stocks would go well but if its for a longer period like 10+ years it safer to go in for value stocks are historically they perform better than growth stocks.

4. Try to keep a schedule of investing and say monthly or quarterly and keep adding to the same stock you have in the same proportion regardless of the current market value i.e. $12.5 per stock per $100. You can move your stocks incase you want to sell and invest into something else at that time unless you want to be a more passive investor then that works too.

5. Try to read and understand how the company you have invested into is going on a weekly or monthly basis so you are more informed and can decide better. This will help you plan ahead as well.

The above 5 points would be a good way to start off when it comes to building an investment plan especially for stocks.