How to Create a Personalized Investment Plan in 5 Simple Steps (Even If You're a Beginner!)
Setting budgets and milestones are essential, but without a clear investment plan, these efforts often fall short. Creating an investment plan is one of the most critical steps toward achieving your long-term financial goals. Studies show that investors who have a documented plan are significantly more likely to succeed than those who don't.
Warren Buffett once said, “An idiot with a plan can beat a genius without a plan," which highlights the importance of clear, strategic planning in investing.
Today, I'll guide you through creating an investment plan in 5 simple steps, giving you a clear path to financial security.
Why Investors Need an Investment Plan
If you've never clearly defined your reason for investing, now is the perfect moment. Do you want financial freedom, retirement security, passive income, or generational wealth?
Without a compelling "why," you'll find it difficult to commit the necessary time and energy. Knowing exactly why you’re investing shapes your strategy and decisions, ultimately improving your chances of success and offering peace of mind.
How to Create an Investment Plan
Now that you know your 'why', you can create an investment plan that will allow you to move forward and begin investing.
Creating a solid investment plan involves more than selecting a few stocks. It means evaluating your financial situation, clarifying your goals, managing risk, and choosing investments aligned with your objectives. The ideal investment plan is personalized, and these steps will help you create one tailored specifically to your needs.
Step 1: Evaluate Your Current Financial Standing
First, assess your financial situation: your income, expenses, debts, savings, and emergency fund. Practical tools like budgeting apps (Mint, YNAB) or spreadsheets can help simplify this.
When I started investing, my funds were limited, but even small amounts consistently invested can build significant wealth over time. Ideally, you should aim to invest a meaningful portion of your income after covering essential expenses and building a solid emergency fund.
How Much Should a Beginner Invest in the Stock Market?
Ideally, invest as much as possible throughout your life. Even if you can only begin with $500, this amount, invested annually at an average 10% return, can grow to approximately $90,472 in 30 years due to compounding interest.
Most stocks are priced below $500 per share, with many stocks being priced below $100 per share, and today, you can even buy parts of a share of a company’s stock.
While the price of a share alone does not tell you how much of a bargain you are getting, the fact that most shares are priced affordably makes it easy for beginner investors to make small investments in the market when they are first starting out.
Today, fractional investing through platforms like Fidelity, Robinhood, or Acorns makes it easy to start with very small sums as well. Commit to investing regularly, no matter the amount, and you’ll steadily build wealth.
Step 2: Define What You Want to Accomplish
Clearly define your financial goals. Distinguish between short-term (saving for a home or vacation) and long-term goals (retirement or generational wealth). Consider using a worksheet or checklist to clarify and document these objectives.
Common mistakes include setting unrealistic goals or not accounting for inflation. Avoid these pitfalls by setting achievable, specific, and measurable targets.
Step 3: Determine How Much Risk You Can Take
All investments involve risk. Your personal factors—like age, financial stability, health, and timeline—determine your risk tolerance.
If you want to earn money for retirement and retirement is 30 years away, you have a lot of time for your money to grow and recover from economic downturns, so you can afford to be more aggressive. However, if retirement is only a few years away, your approach will be focused on ensuring you will have enough money, and that you don’t lose it.
How much risk you can tolerate is a personal decision, so give it some thought. It’s not about how quickly you reach your goals but actually reaching them that’s important.
High-risk tolerance: Younger investors aiming for aggressive growth.
Moderate-risk tolerance: Those mid-career, seeking balance.
Low-risk tolerance: Near-retirement investors focusing on preservation
Use self-assessment tools or questionnaires to help identify your risk tolerance clearly.
Step 4: Decide What Type of Investment to Make
Your choice of investments depends on your financial goals and risk tolerance. Here are beginner-friendly investment types:
Stocks
Stocks let you own a piece of publicly traded companies. When you purchase an individual stock, you become a partial owner of the company whose stock you purchased. That means when the company makes money, so do you, and when the company grows in value, the value of your stocks grows as well.
Investing in stocks is by far the most rewarding investment option since it allows you to profit from owning any publicly traded company that you wish to invest in.
On average, the entire stock market grows at a rate of about 7% a year, but it is possible to achieve much higher returns by investing in hand-selected individual companies.
Consider investing in companies you understand well, with a strong financial record. Avoid common beginner mistakes such as chasing trends or speculative stocks.
Investment Funds
These are professionally managed portfolios of stocks or bonds. While these funds are built and managed by so-called “financial experts”, they typically have a hard time beating the market when you factor in the fees that fund managers charge to those who invest in their fund.
You’ll have a much easier time (and more fun!) learning how to invest your own money rather than relying on some mutual fund manager who can’t beat the market.
Bonds
Bonds are loans you make to governments or corporations, offering moderate returns (2%-4%). Those returns aren’t great, especially if you’re getting close to retirement and don’t have 40 years to grow your money.
Annuities
Annuities provide guaranteed periodic payments, usually for retirement income. They are contracts between an investor and an insurance company where the investor pays a lump sum in exchange for periodic payments made by the insurer. They have disadvantages—like high fees and limited flexibility—and usually aren’t suitable for beginners. They're generally beneficial only for investors who require guaranteed income.
Step 5: Establish Your Timeline
Set clear, realistic timelines for your goals:
Short-term (1-3 years): Saving for a vacation or down payment.
Medium-term (5-10 years): Paying for college or expanding investments.
Long-term (15+ years): Retirement or generational wealth building.
Visual timelines or milestones help you remain accountable. Investors who set clear timelines typically reach their goals faster and with fewer distractions.
I encourage you to make a promise to yourself that you will accomplish that thing and make a plan to go after it.
Your goals are worthless if you don’t commit to them and take action. Write down the action you can take today to take a step toward your end goal.
Bonus Step: Continue Learning Strategies for Beginners
Successful investors continually educate themselves. Expand your knowledge through:
Podcasts (InvestED, The Investor’s Podcast)
Books ("Rule #1" by Phil Town, "The Intelligent Investor" by Benjamin Graham)
Blogs and YouTube channels focused on investing
Avoid common beginner pitfalls like over-analysis, impulsive strategy shifts, or investing in businesses you don’t understand.
Common Mistakes Investors Make
Avoid:
Panic selling during market drops
Chasing short-term market trends
Investing in businesses you don’t understand
Ignoring your risk tolerance
Learn from these mistakes by staying calm, investing consistently, and regularly reviewing your portfolio.
Take Action Today
Your goals mean little without action. Commit today by clearly defining the steps you'll take this week toward your financial objectives.
For deeper insights, join my free investing webinar—a 18-minute introductory webinar to Rule #1 Investing. Learn to invest confidently and independently. Then join us at our next 3-day workshop! Previous attendees have called it a "game-changer" for their investing confidence.
