How Investment Plans Work
by: John Mussi
More people are choosing investment plans than ever before. With the
rising cost of living and the growing insecurity about the availability of
many retirement funds, many individuals are looking to investment plans to
begin a nest egg or to make some additional money via investment without
having to spend a lot of time purchasing stocks and bonds.
Investment plans allow individuals to simply purchase a specific amount
of stocks, bonds, or indices on a regular repeating basis, cutting out a
large part of the hassle while allowing for some of the main advantages of
investment.
If you've been considering an investment plan but aren't completely
sure what they might entail, the following information might help you to
decide whether or not an investment plan is the right investment option
for you.
The Mechanics of an Investment Plan
Basically, an investment plan is a method of making multiple
investments over time at regular set intervals. The funds for the
investment are taken from a cheque, savings, or money market account
automatically, and are used to purchase stocks or bonds that you have
decided upon beforehand. In most cases you can change the amount,
frequency, or purchased stocks or bonds of the automatic investments at
any time, though depending upon the broker through whom you're doing the
investments you may be subject to fees or penalties especially if changing
details relatively close to the next investment date. Most online
investment firms offer investment plans that you can change at any time
free of charge.
Deciding How Much to Invest
When deciding how much to invest each cycle with an investment plan,
you should take care not to overextend your funds and bring yourself up
short. Make sure that the amount that you choose is available and that
you'll have it to spare each time your investment comes up… it can be
difficult to plan for events in the future, and just because you have a
surplus now doesn't mean that you won't find money running tight a few
investment cycles from now.
If you feel that you're reaching a point where you won't be able to
afford your regular investment, go ahead and reduce the investment amount
or put a hold on the next scheduled investment… better to put less in than
short yourself afterwards.
Choosing What to Invest In
Making the decision of which stocks and bonds to invest in can take
some time, but it's worth it… this is your money that you're dealing with,
and you shouldn't invest it without putting some thought and research into
your decisions. Find stocks or bonds that have performed well over time,
and that are likely to continue doing so… they may be expensive at times,
but you aren't making your total investment all at once so it doesn't
matter as much.
Don't be afraid to add new stocks or bonds to your plan later, either…
this can help to diversify your portfolio.
Deciding On an Investment Interval
You also need to decide how often you wish to make your investments…
this will largely depend upon the cycle of your paycheques and your
monthly bills and expenses. You may decide to invest once per month, after
everything has been paid, or you might want to invest a little from every
paycheque.
The more often you invest, the lower the amount of each investment can
be… after all, two or four small investments per month might end up
purchasing more than one larger one.
Decide on what works best for your lifestyle, and modify it as needed
later if it doesn't seem to work out for you.
You may freely reprint this article provided the following author's
biography (including the live URL link) remains intact: |
Fund Letters