Ideas & Debate

How you should plan for 2018

Budgeting helps you know what is available for investment. FILE PHOTO | NMG
Budgeting helps you know what is available for investment. FILE PHOTO | NMG 

The New Year is here. Getting prepared for an investment-sound 2018 is always an admirable thing. To get started, perhaps the hardest and most important part is by taking an honest look at one’s own financial plan.

So today, we look at a few basic elements that can help get your investment act together.  

First, budget. Without a budget, you risk overspending on discretionary items and under-saving for more important purchases such as investments. Put differently, one should not expect to invest properly if they do not know what’s available for it.

So if you don’t already have a budget, this should be your new-year milestone. If you’re already using a budget to help manage your finances, a New Year tune-up can help you make sure it’s still current. Mapping out your expected income and expenses can never go out of fashion.

Budgeting ahead to an annual fresh start that the year affords us all is perhaps the best thing you can do.

Next, factor in your short-and long-term goals. For shorter term goals – within three years, you’ll want to keep your money somewhere safe like a bank account or stable money market fund that just earns interest and doesn’t fluctuate in value.

That’s because if you want to invest the money in something more aggressive like stocks, it could lose value and not recover by the time you need the money.

The benefit of a higher return is also much less when the money has such a short time to compound.

For longer-term goals, it probably makes sense to take some investment risk. Otherwise, you face the risk of having your purchasing power reduced by inflation.

A five per cent return with the average six per cent inflation is actually losing one per cent a year in real terms—in what you can buy with that money.

Having just 12 per cent in stocks can give you enough growth to at least keep pace with inflation. The exact percentage depends on your comfort with risk. 

The next step is to get started. It’s never too early or too late to begin. The first practical step is to open a brokerage account.

Think of it as a bank account where you can buy and sell stocks, bonds and Treasury bills (not tradable yet, only held to maturity). Once your account is open, you need to fund it.

All you really need in your account is enough money to cover whatever investment you plan to buy. As you progress, you can add more at any time in order to diversify your portfolio.

One more thing, for investment success, you’ll need to stick with the plan. Remember: You’re investing, not speculating.

No matter what the financial or economic climate, long-term investing is an essential way to grow your money for needs you will have down the road.

For re-assurance, King Solomon – famed richest man who ever lived – had this to say: “The plans of the diligent lead to profit.” What a better way to kick off a great 2018?