Investment Planning is a process of assessing your current position relating to your investments, establishing goals, identifying shortfalls that exist and building, implementing and monitoring plans to drive you to a successful investing experience.
Concepts of Investment Planning
Over the years, you have probably been reminded by your friends about the riches they have  earned by acting on stock tips or the more prudent group who have drilled into your head the importance of first having safety of capital.
Investing is not about combing the stock pages of the newspaper to find companies that will emerge as the next Microsoft or discover a cure for cancer. Investing is simply an activity in which you need to participate to help you save and grow your investments so that your goals can become reality.
Investing to many people is quite intimidating. That’s why we are starting you off with some encouragement and reassurance. If your goals are realistic and you are patient enough to follow a conservative and balanced plan, you can generate returns necessary to help you make your dreams come true. Investment returns are only part of the equation. Savings or realistic spending (depending where you are in your circle of life) has as much or more to goal attainment as investment return.
Investing is taking reasonable risks to earn steady rewards. As you will see, it works because buying stocks, bonds and other investment vehicles allows you to participate in the relentless growth of the world's economy, which hardly follows a straight line, but does trend upward over time. It is also true that the longer you stay invested, the greater the certainty that your money will grow.
Compounding
If you put your money in an investment with a given return -- and then reinvest those earnings as you receive them -- the snowball effect can be astounding over the long term. This is particularly true in retirement accounts, where your principal is allowed to grow for years -- even decades -- tax-free.
The “Rule of 72” allows you to see the impact of rate of return on your pot of gold at the end of the rainbow. Simply, by dividing the rate of return into the number 72, you can determine how many years it will take for your money to double
Investor A is able to generate a return of 7.2% will see her money double in exactly ten years (assuming the investment is allowed to compound in a tax-sheltered account). Investor B is able to generate a 12% return will be able to double his money in just six years.
For comparison purposes, let’s look at these two investors who both start with $50,000 and have a twenty-year time horizon. Over the twenty-year period, Investor A’s money will double twice and will accumulate a portfolio worth $200,000. Investor B will see his investment grow to over $500,000.
 To make the numbers grow much more quickly, let’s assume that over the twenty-year period, both investors contribute $5,000 to the portfolio at the end of each year. Investor A’s portfolio will grow to $410,000 and Investor B’s portfolio will grow to $843,000.
The key to success is evident in this equation:
Portfolio value = Current assets + Growth + Contributions + Time
Find the right combination and you are well on your way to fulfilling your dreams.
Liquidity
Liquidity is the ease with which you can redeem an investment for cash or reinvestment. The more liquid an investment is, the quicker you can convert it to cash. A balanced portfolio should have a certain percentage of investments in liquid assets. This is most important in case of any emergency. Liquidity is a key risk factor for investors because the more liquid a portfolio is, the lower the risk it has.
Risk Profile
Generally, the more risk involved with an investment, the higher its potential return. Therefore, the more risk you are willing to take, the more potential your savings have to grow over the long term. Before choosing an investment, you should make sure you understand the investment, the risk it carries, and how that risk can effect the achievement of your goals.
For example, if you are investing for your two-year-old child's education, you can probably afford more risk in your investing than someone whose child will begin college in two or three years. With more than 15 years before you'll need your money, you should have time to make up any short-term losses your investments may experience. Of course, nothing is
100% guaranteed and it is possible that any losses will not be made up in a 15-year time period.
If you are looking for an investment with minimal risk, short-term money market funds may be appropriate for you. For more of a risk taker, longer-term fixed-income investments fit the bill. Equity investments offer the highest potential returns with the greatest amount of risk. A combination of money market, fixed-income, and stock investments can provide potentially higher returns than any single investment category alone, with only slightly greater risk.
Once you are satisfied with the size of your portfolio your risk tolerance may decline and you may consider reallocating your portfolio to minimize the risk involved. Switching from long-term investments to short term investments lowers your risk and return but offers more stability and security
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