Investment Strategies in Personal Financial Planning

Personal financial planning is essential as it lays the roadmap for accomplishing your life’s goals. A robust financial plan includes crucial aspects like investment planning, insurance planning, retirement planning, tax planning and estate planning.

That said, investments are a crucial aspect of financial planning as prudent investment planning ensures money is available when needed. Read on to understand how to formulate the right strategy to reap success.

Factors Guiding Investment Strategies in Financial Planning

Some vital factors that should guide your investment strategy while formulating a financial plan are as follows:

1. Goals you want to achieve

   Your investment choice should be guided by your life goals. You can divide your goals into long-term and short-term. While long-term goals are objectives more than ten years away, short-term goals are those you want to achieve within a few months to a few years (see table below).   

   Goal type	Examples	Financial instruments you can invest in
   Long-term	Child’s higher education, retirement	A life insurance savings plan, Unit-linked insurance plans (ULIPs), Endowment plans, Shares, Equity Mutual Funds, PPF, etc.
   Short-term	Going on a vacation, accumulating funds for the down payment of car/house	Bank Fixed Deposits, Recurring deposits, Liquid Mutual Funds, etc.

2. Risk tolerance

   This is another important consideration during financial planning in personal finance. Risk tolerance refers to the risk you can take. You can opt for market-linked instruments like ULIP plans if you have a high-risk tolerance.
   On the other hand, if you have a low-risk tolerance, you can opt for a guaranteed plan that offers assured returns. Typically, young individuals and those who are in the pink of their health have a higher risk appetite. Risk tolerance comes down as you age and have more responsibilities to shoulder.

3. Time horizon

   This is another essential factor dictating investment strategy in personal financial planning. Long-term goals, as highlighted in the table above, warrant remaining invested for a long period. This is not only essential to build the desired corpus but also to beat the effects of inflation and navigate market volatility.
   You have better chances to ride market volatility with market-linked instruments when you remain invested for a long period. On the other hand, for short-term goals, where you need money on short notice, it is wise to invest in low-risk products to prevent the corpus from getting eroded due to market vagaries.

4. Diversification

   Diversification is fundamental to investing. It helps mitigate risks and provides stability to your overall portfolio. Experts offering personal finance advice recommend diversifying your investments across asset classes with prudence.
   From a Century plan, ULIPs and market-linked instruments to guaranteed plans and other fixed income products, it is essential to diversify your funds to achieve your goals.

5. Periodic Review: An Absolute Must

   Your investment strategy in personal finance planning shouldn't be static. Periodic review is an absolute must. This review helps you understand the performance of your investments and if they are on target. Periodic reviews also help you make changes per your evolving needs. However, seek professional expertise before making changes to your investment portfolio.

Impact of These Factors on Investment Strategy

The table below highlights the impact of each of these factors on your investment strategy:

In Conclusion

The right investments, coupled with optimum personal financial planning, go a long way toward helping you achieve financial freedom. This exercise not only helps you achieve your set targets but also ensures you remain on a solid footing during trying times. While you can always do it on your own, it's good to engage with a professional for better outcomes. PNB MetLife offers various investment products to help you accomplish key life goals.

Disclaimer: