Five steps to create a successful long-term financial plan:
(1) Know your Financial Goals – Are you planning your retirement after 25 years? Or, are you planning to buy a new car after 5 years? The first approach to select funds is that one should identify the financial goals and the time horizon it will require to accomplish that financial goal.
(2) Do your risk profiling – Make sure that the fund also suits your risk appetite. Analyse your risk taking capacity by answering a set of questions which will help you get to know your risk appetite. One of the important aspects of financial planning is risk profiling. It helps an investor understand how much risk they can take vs how much risk they should take to achieve their goals.
(3) Know how much you can invest – While getting your financial plan made, you can actually calculate the exact monthly investment you need to make towards a particular financial goal. Through this plan, you get to know which goal is for short term and which goal is for long term and accordingly, plan your investments towards achieving them. The amount of investment is derived by assuming a certain rate of return as per your risk profiling and the duration of the financial goal.
(4) Evaluate your risk and then invest – After analysing your risk appetite it is time to make the investment. It is really important to evaluate risk and financial goals before choosing a fund as different scenarios need a unique portfolio mix in order to achieve financial goal taking into consideration of the risk profile.
(5) Review and rebalance – It is important to review your financial plan twice a year or at least one’s a year during the planning tenure. Make sure you follow this process until all your financial goals are achieved successfully. The process of reviewing your goals is necessary because the market condition is not same all the time and therefore, most of the time you are required to rebalance your portfolio from time to time taking help from financial adviser so as to achieve your financial goals on a particular defined time frame.
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