Investment decisions need to be based on a plan. You need to cover the bases you can and then let the markets do their worst.

Your investment plan centres on you – what you financially need, want and are prepared to risk. It is a vehicle that gradually gets you from where you are to where you want to be, and it works best if you are clear about your future priorities, targets and direction.

So, it is you – and not anybody else – who is in command of your own financial future. It is you that must take the tough decisions. Make sure you base your decisions on the right information, starting with what exactly you want to achieve through your investment.

  1. What are your investment priorities?

You need to be clear about what you want out of your investment plans. Most invest with the general aim of a more secure financial future. Others want to build up funds to subsidise a future asset purchase such as a car or a house or to finance their children’s education.

So, ask yourself the following:

What are you investing for?

If you are in your 20s and 30s, retirement might be the least of your priorities. Instead, you might be looking to build up some money to finance your post-graduate qualification or to support key milestones of your family life. As you grow older, the importance of maintaining financial independence after retirement is likely to ascend within your list of investment priorities. Knowing what you will be spending your money on and when you will be doing so is as important as knowing where you should be investing it and for how long.

How long are you looking to invest this money for?

This will decide the overall shape of your investment plan.  For a short-term goal – such as saving for a car or the deposit on a house – where you put your money will be entirely different from where it goes if you are saving for your pension.

Long-term investments such as pension funds can afford to ride out the regular ups and downs of financial markets because after all, they usually enjoy an overall upward trend in the long run whilst beating inflation in the process.

In contrast, short-term investments run the risk of getting caught in a down cycle, so sticking to cash savings accounts like Cash ISAs be a safer option.

  1. Things to consider

How much of this money can you afford to lose?

Are you prepared to take a risk or not? Can you really afford to do so? Be clear: high yield ALWAYS involves HIGH risk. So, be ready to read into the fine-print of any contracts, be wary of the authenticity of the product, any hidden charges, delayed costs or regulatory implications, and understand the overall risk of loss before putting your money in any investment.

How much of this money might you need back at short notice?

A key question when you are putting together an investment plan. What is your exit priority? You must be absolutely clear at the beginning as to how much money you can afford not to see for maybe many years to come.

How much of this money will you putting up in one go, and when?

You may have a lump sum to invest right away. Or you might be planning staggered payments over the coming years. Either way, how much and how often you can invest is a key factor in making investment decisions.

  1. So what is the best plan?

Your investment plan will depend entirely on what you want out of it. You have specific financial goals – and so your plan is very specific too. But there are three features you should be looking for:

Start Small

Do not get involved with complex financial products until you have had time to get acquainted with their pros and cons. In the meantime, grow your savings by using as much of your annual ISA and pension allowances as you can. Only consider higher risk investments once you’ve built up low and medium-risk ones.

Give yourself options

When it comes to financial prudence, it is the oldest saying in the book: “Don’t keep your eggs in one basket.” Diversifying your investments is the best way to steer clear of financial catastrophe. For a private investor, this means a simple mix of cash, equities (such as shares or funds) and, when possible, commodities such as gold.

Keep a weather eye

It pays to keep an eye on your investments – but not too closely.

On the one hand, an annual review of each and every bank account, holding and contract you have is essential.

But, on the other hand, don’t be tempted to do anything unless you have to – play the long game. Good investments tend to be long-term, while short-term investments either yield very little or are just plain gambles offering high yield but at a considerably high risk.

  1. Final thoughts

A good investment is one which fits into your investment plan – meaning that it reflects your investment priorities, whatever they are.

But a good investment is also one you can understand. Financial products are often so complicated that it is difficult to get a general overview of what they involve.  This can leave you with nasty surprises in the future. And the temptation is always there to take the assurances of a salesman at face value rather than put in the hours to pore over the paperwork yourself.

But this is your responsibility.

Understand each and every investment opportunity so you can test it against what you have set out to achieve. As financial journalist Matt Becker asks, “How can you understand whether it helps you reach your goal if you don’t even know how it’s supposed to work?”

Stay tuned to the Holborn Assets’ blog for an exclusive series of articles demystifying different types of investments.