Investing 101: How to Create the Perfect Financial Plan

A good plan is key to a successful investment program. The basis or foundation of your plan is your goals so begin by crafting a list that includes your goals, the amount you need, why you need it or the purpose, and the date you need it.

For example, if you have goals to buy a house and retire, your list may look something like this:

Goal Amount Needed Purpose Date Needed
House $20,000 Down Payment June 1, 2012
Retirement $500,000 Supplement Pension Sept. 1, 2025

I have listed a short-term goal (buying a house) and a long-term goal (retirement) so I now have the basis for making some important investment decisions. I can decide how much risk I can afford to take and still accomplish my goals, and some appropriate categories of investments for each goal.

House Goal: I can’t afford to take any risk with this money because I will need it in a relatively short period of time (two years). Therefore, I can only choose investments that will preserve my principal such as CDs, money market funds, or Treasury bills.

Retirement Goal: I can afford to take considerably more risk with this money because I will not need it for a long period of time (15 years). And, I don’t need all of the money in one lump sum. My plan is to withdraw a set amount each year to supplement my pension and leave the rest invested.

Depending upon the return I earn on my money each year, I may only need to use a small amount of the principal because the rest will be made up from the interest I earn or income from my bonds. So, my goal is to earn as high a return as possible while still staying at a moderate risk level.

Therefore, I will invest a large portion of my money in growth investments like stocks and/or stock mutual funds, exchange-traded funds, and possibly bonds that will mature in 15 years or longer to provide income. (Note: A great Website to determine how long your money will last if you withdraw a set amount each year from money that is growing at different rates of return is Based on these two goals alone, a first draft of my portfolio allocation could look something like this:

However, remember this is just a first draft and my final portfolio allocation could be very different based on answers to additional questions regarding my risk tolerance level, how much money I currently have available to invest, and how much I plan to invest monthly.

Once you understand your goals and the types of investments that might work best to accomplish them, the next step in the process is deciding if you will go it alone or work with a financial adviser. Tune in next week for Part 2. (Please click on investing terms for longer definitions.)

Patricia Stallworth, CFP® and CDFA, is the president of PS Worth, a financial education company, the author of Minding Your Money, and the host of the Minding Your Money Minute™. Learn more by visiting