Creating an investment plan

   By Rachel Waterhouse, CEO
 13 September 2021

Do you have an investment plan? Is it written down, or floating around in your head?

Diving into investing in shares without a plan can be a very expensive way to learn – successful investors know that having a written investing plan is essential. Yet around a quarter of investors appear to have a take-it-as-it-comes approach to investing, with no real sense of their goals or how they will achieve them.

No matter what your stage of life or investor level may be, clearly defining your strategy (perhaps with input from a qualified financial planner) will put your investment on a solid footing and ensure that you have a good understanding of: 

  • The objectives of your investing activities.
  • The strategies or actions that will determine how you reach your objectives.
  • The tactics that you will employ to implement them.

To prepare your investment strategy, you must first identify your financial situation and document your goals, including whether you want to invest in shares or other vehicles.

You will then create an investment plan, which includes what you to invest in, what sectors you’ll focus on, how you will weight your portfolio, and how you will mitigate risks. This might sound easy, but it is possibly one of the more difficult things you’ll need to do if your strategy is to succeed.


Let's have a closer look at some of the key components of a plan:


What are your objectives?

The objectives of your share investing plan should be related to one or more of your financial goals.

Let’s imagine an investor who wants to accumulate $1 million by the age of 45. To reach this target, she would need to: 

  • Identify how much she can invest to start with.
  • Establish whether that will increase over time, and by how much.
  • Determine the rate of return on her capital, and what level of saving she would need, in order to reach that financial goal.

This could then be framed as a more detailed objective, such as: 

  • Make an initial capital investment if $50,000.
  • Increase this capital by $20,000 a year from my salary and other revenue sources.
  • Generate a minimum 9% return on my capital each year.

It is important to keep your objective realistic and measurable. A person with a high income and few expenses may be able to deploy $20,000 a year, but someone with an average sized family and dependents may find it harder to find surplus funds to invest.


What strategies will you use?

Your share investing plan should identify strategies to make your investments more closely align with your objectives. This includes considering different types of investments and identifying how you will manage your portfolio and risks.

Some questions to ask yourself may include:  

  • How much capital are you going to use for your share investing activities?
  • How will you allocate this capital to different asset classes? What proportion of your investment will go to each?
  • What risks could you face with your investments, and how will you manage them?

Remember that risks may differ depending on your stage in life.

A young investor who is earning a salary can take on more risk and may choose to have a higher exposure to shares. An investor retiring in a year may want to keep more cash on hand and expose less capital to share investing activities.

When developing your investment plan, you’ll need to consider a variety of risks and their implications for your strategy, including: 

  • Cycle risk: You may find it hard to make money if you invest at the top of a cycle. Be aware of the current market cycle to know whether it is time to invest.
  • Specific risk: Diversifying your investment across market segments or industries could reduce your exposure if a sector were to underperform. Reduce that exposure by determining in your plan what proportion of your investment will sit with each segment.
  • Personal financial risk: You can increase the returns from your capital if you invest more, and to do this you may need to borrow money. But this can also increase your losses and it creates a liability that you will need to manage. As part of your strategy, you may need to decide whether you want to take on debt (by taking out a margin loan or dipping into your mortgage redraw facility) or limit your investment to available capital.
  • Investment financial risk: Just as an investor can borrow, so can a company. Highly leveraged companies can expose themselves to greater risks if they don’t manage their debts effectively, but they can also deliver increased returns if they do. As an investor, you may need to decide just how leveraged you are willing a company to be before you decide not to purchase shares in it.
  • Liquidity risk: Some shares are more liquid than others and some investment strategies (particularly those based on borrowed capital) may need to have this flexibility. In addition, if stocks have low liquidity, you may not be able to sell your shares if the company gets into trouble. Depending on the size of your portfolio, you may need to consider developing rules to define the liquidity of the stocks in which you invest to manage this risk.


What are your investment timeframes?

Investment timeframes will differ depending on your financial goals and your stage of life.

Whether you are investing for the short-term (1-3 years), medium-term (4-6 years), or long-term (7+ years), you should consider what impact this may have on your goals and how you will arrange your strategy in response.


What tactics will work for you?

There are several facets you will need to consider as part of your plan.

These can be related back to “income or growth”, different ways to analyse shares, portfolio management basics, and deciding whether to buy, hold, or sell, and should include:  

  • The purpose for investing in different shares – investing for dividends, growth, or a combination – and how much you’ll invest in each.
  • The method for selecting shares to buy.
  • The values you bring to your strategy and how they influence your investment options.
  • The type of organisation or vehicle in which you’ll invest and what won’t be considered – for example, ethical funds, industrial shares, exchange traded funds, listed investment companies, etc.


Review and refine

  • A share investing plan is not a static document and should be reviewed regularly. You might want to do this by: 
  • Writing and rewriting your plan after thinking about your objectives, strategies, timeframes, and tactics.
  • Tweaking elements of the plan as you learn more to correct errors and fill in gaps.
  • Testing the plan by looking at past data or by employing the plan on a limited scale in a real-life market. This is often the best way to learn. When you are comfortable that your plan works, you can decide if you want to increase your exposure.

Keeping good records, including keeping track of:  

  • The financial outcomes of purchasing and selling shares so that you know whether you have been profitable or not. Don't leave it to your accountant to tell you this at the end of the year, as this will be way too late!
  • Your thought process as you make decisions. Keep an electronic diary, so that you can screen capture charts or reports, or to record your own analysis of what you knew when you made the decision.
  • Reviewing your decisions behind the share investment plan, as shown in Table 1. This helps you to identify where you need to improve and strategies that you can apply.

Table 1:  Have you made the right decisions for the right reasons?


Wrong reasons

Right reasons

Good decision

A mistake, but you got lucky!

On the right track – develop these skills!

Bad decision

A mistake you need to address.

Tough luck! This is a natural part of investing!



Investing in shares is a good skill and a wise decision, but like all skills, it needs to be developed.

A well thought out share investment plan, that is regularly revised and tweaked, will help to protect your capital, and deliver additional revenue and growth.

By identifying your goals and objectives; creating your strategies, timeframes, and tactics; and reviewing your decisions regularly and objectively, you are taking sensible steps towards a secure future.


Get Started

Many people deter starting their investing journey until it is too late. However, wise investors know the power of accumulation over time. The sooner you start on your investment plan the sooner you will arrive at your investment destination. In the example above, if our hypothetical investor started her plan on the basis outlined at aged 27, she would hit her target by 45 years of age.

If she couldn’t afford $20,000 a year after the original $50,000 investment but could afford $10,000 annually, she would hit her target by aged 49. The important thing is to start.



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