One of the parts of developing a comprehensive financial plan is the development of an investment plan. There are six steps that you should follow when you are developing your investment plan.

1 - The Means to Invest.

In order to even begin this portion of your financial plan, you must determine that you are ready to save. In this step you will determine if you are going to use the money on some good or service (spend it), or if you will invest or save the money.

2 - Investment Time Horizon

In this step, you will be determining how long you plan to invest and when you will need the funds to meet your financial objective(s). You must decide, based on the time horizon of your objectives, among short-term investments, long-term investments or some combination. In this step you are going to be determining what you will be saving for, which should give some indication of your time horizon.

3 - Risk and Return

You will need to determine what your level of risk tolerance is. As the level of risk tolerance increases so does the potential for higher returns as well as larger losses.

4 - Investment Selection

Based on 1, 2 and 3 above, investments should be selected to meet your goals. These investments must satisfy your time horizon and your risk tolerance.

5 - Evaluate Performance

Once investments are chosen and expectations are established, the performance of your investments should be determined by comparing the actual realized returns against the expected returns. The returns should also be compared to a benchmark, such as the S&P 500 index. In addition, the investments should be reevaluated to determine if they continue to meet your investment criteria.

6 - Adjust Your Portfolio

Your portfolio should be adjusted to maintain your goals and your investment criteria. If your goals change, your investments should be reviewed to determine if they continue to meet your objectives.

To summarize, once you have determined that you are financially able to begin investing (or saving), you should evaluate your investment goals and set out a plan to accomplish these goals. Once you have begun your investment plan, you must periodically review the performance of your investments and re-evaluate your objectives and investments to make certain there is a good fit.