The Ameristock Guide to Formulating a Sound Financial Plan
Investing: So Many Ways, So Many
"What Do You Want to Do With Your
Though people most save and invest in the market for a
wide variety of reasons, the following are the most
Fortunately, there is a financial plan format that fits all circumstances (including yours). Your plan can be mapped out by closely considering into two basic investment objectives and six inherent constraints.
Your Plan's Two Basic Investment Objectives
1) Required Return
The formula for figuring out required return is:
Required Return = (($ Want / $ Have)^ 1/Time in Years) -1
The little caret sign, ^ means "to the power of." Any calculator with an Xy key should work. If your calculator doesn't have an Xy key, call us. Ours does.
Now let's put that formula into practical terms by inserting some actual numbers:
Suppose you have $25,000 but you need $50,000 for that new home you're planning to buy in seven years. Here's how this example would translate into the above equation, step by step:
Required Return = (($50,000 / $25,000)^ 1/7) -1
2) Risk Tolerance
Your Plan's Six Basic Constraints
3) Investable Funds
In dollar cost averaging, you periodically and regularly invest a set amount of money so the average cost of shares rises and falls with the market's peaks and valleys. Your dollars buy fewer shares when the market is up, but when it's down? They buy more.
4) Investors' Preferences
Do you want to invest in American, overseas or multinational companies? Do you like large, well-known companies or small startups? On a completely different note, Will the account go to your grandchildren? A charity? This is one area over which you have complete control. As the investor, it's all up to you and your preferences can be as broad or narrow as you like.
Relax. It's Easier Than It Looks.
Looks complicated? It isn't.
Chances are, you probably already have some form of a basic financial plan in your head. Writing it down using the above objectives will help you formalize it. It'll also help your investment process by helping you match the different funds out there to your specific needs. It will also come in handy later on, when you're reviewing your investments and how they fit your lifestyle.
Has anything changed in your life recently? If so, see if your investments still meet your needs. If they don't, change them. Everyone's investing style changes as they go through life. Marriage, children, grandchildren, business conditions, home ownership and more can impact to varying degrees how you invest. Having a financial plan that you can review again and again as life unfolds will help you meet your investment goals.
*Such a plan does not assure a profit and does not protect against loss in declining markets. Such a plan involves continuous investment in securities regardless of fluctuating price levels of such securities. Thus, an investor should consider their ability to continue their purchases through periods of low price levels.
Ameristock Funds. Your Place to Be in the Market.