How to Create an Investment Plan | Step-by-Step Guide

Creating an Investment Plan

So you have just embarked on your very own personal finance journey. You have the basics of increasing income and decreasing expenses down pat and now you want to get into the fun stuff, investing! Well, you have come to the right place. This step-by-step guide will walk you how to create an investment plan.

Firstly, I must note that I am not a financial advisor and this is not intended to be financial advice. This article is intended for informational purposes only and does not constitute financial advice.

To get everyone up to speed, investing is the process of buying an asset with the hope that it will generate you more assets. Common examples of investments are real estate and shares. For example, somebody investing in real estate might buy a house for $100. They might sell the house a year later for $110 and may have also received some rental income along the way. The same principle can also be applied to shares.

Of course, investing is slightly more complex than this, but the principle remains true – people invest in different assets to try and turn the money that they have, into more money. This is where the age old saying comes from – ‘money makes money’.

To those new too investing, it can be overwhelming knowing where to start. There is an absolute plethora of information out there, much of which is not beginner friendly and does its absolute best to over complicate relatively straight forward concepts.

We have compiled a list of easy to follow ‘steps’ that you can use to create your own investment plan. These steps are only intended to give you a starting point and provide some clarity around how you can create your own investment plan. All final investment decisions are your decision and should only be made after thorough research has been done. Aussie FI will not be held responsible for your investment decisions.

This post contains affiliate links. This means that if you purchase an item, I will receive a commission. Please keep in mind I only recommend high quality products and services that I have either used or thoroughly researched. These commissions allow me to keep making awesome content for you 🙂

Personal Finance Assessment

1. Complete a Finance Assessment

Before you even begin to get into the nitty gritty of creating an investment plan, you should review your current financial situation. Here are some key questions should ask yourself.

Are you in debt? If you owe someone else money, can you really afford to be setting aside regular amounts of money for investments? In instances where the interest rate of the loan is large, it usually makes sense to focus on paying off your debt before getting started with investing. You can find helpful strategies to help you pay off your debt here.

Are you financially stable? Are you are currently living pay check to pay check? If you are struggling to pay your rent from month to month, maybe now is not the right time to start investing. If this is the case, I would recommend focusing on either increasing your income or decreasing your expenses. This may leave you with more money at the end of each month that you can invest.

Do you have an Emergency Fund? If you don’t have an emergency fund consisting of a minimum of two months worth of expenses, don’t even think about starting to invest. Your emergency fund is there to protect you in life when things go wrong. If you’re not familiar with emergency funds or their importance your can find out what they are here.

2. Understand the Risks

Are your expectations realistic? It is important to be realistic about your investment plan. Whilst investments like property and the share market have approximate historical returns of above 8%, most investments are subject to downswings. You should not invest money that you are likely to need within the short term. The reason why you should not do this is because if the value of your investment falls and you need that money, you may be forced to sell and are locking in a real loss by doing so.

Investment returns are not guaranteed | It would be completely irresponsible to say that you are guaranteed to make money through investing. The reality is that It is possible that you may lose money investing. It is unrealistic to expect your investments to continually go up in value. How would it make you feel if your investments lost 10% of their value overnight? It is important to understand the risks when you invest in different asset classes. Whilst past returns of different types of investments can give show how they have performed in the past, they do not guarantee the future.

3. Define Investment Goals

Are you investing for the short term (0-2 years), medium term (2-10 years), or long term (10+ years)?

Understanding your investment horizon will allow you to better select your investments based on your personal risk tolerance. For example, someone who is a short term investor may have a lower risk tolerance due to the fact that they are going to need their money within the next two years. It would hence not make sense for them to invest in any asset that is volatile due to the fact that they may be forced to sell their investments during a market downswing.

On the flip side, someone who is a long term investor may have a higher risk tolerance due to the fact that they can wait out a market downturn rather than being forced to sell.

Are you investing for capital growth or income?

Are you investing for capital growth which is the rise in value of your asset, or are you looking for your investments to provide you with income? You need to determine this as it will largely decide what type of assets you invest in. For example, if you are investing for income you might invest in some companies that pay a high dividend yield or invest in property in an area where rental yields are high. Whereas if you are investing for capital growth you may chose to invest in some smaller companies that don’t pay dividends but have high growth potential.

What sort of returns are you looking to make on your investments?

Are you looking to simply out-pace inflation or are you looking to get a return of 10% a year. You need to determine this before you begin investing. Most types of investments run on a risk-reward system, the larger the returns, the larger the risk. If you only want to stop inflation from eating away at your money, then it doesn’t make sense to invest in a ‘high risk’ investment such as the sharemarket or property. On the contrary, if you are aiming for large returns, you wouldn’t leave all of your money sitting in the bank earning 0.5% interest.

Investment Risk Reward Chart

4. Asset Classes

Now that you have completed a review of your current financial situation and are aware of the risks of investing, you can get into the fun stuff – choosing what you want to invest your money into. This is a key part of crating an investment plan. There are many assets to chose from when investing, here is a brief summary of the five most common types of investments.

Cash | A cash investment is an extremely defensive type of investment. If you have money in a savings account or a term deposit, that is considered a cash investment. Most banks offer a small return in exchange for holding your cash, this is called interest. At the time of writing, most banks within Australia are offering between 0%-1.5% interest. There are a number of benefits of cash investments including extremely high liquidity, low risk and simplicity. Typically cash investments are suitable for those with short term investment horizons due to cash’s almost non-existent volatility. However, with low volatility and low risk, also comes low returns. Some investors like Warren Buffet like to always keep a certain amount of money in cash so that they have the opportunity to purchase assets like shares and property when the market dips.

Bonds | A bond is very similar to a loan. When you invest into a bond, you are in effect lending your money to an entity – usually a company (corporate bonds) or a government. You will receive interest payments on the loaned amount and will receive the entire amount back once the bond matures. Bonds are typically a defensive investment much like cash that are used to diversify and balance a portfolio that may also have higher risk investments such as shares and property.

Real Estate | Real Estate is broader than just the domestic housing market. Land, commercial real estate and REITs are all different ways of investing in real estate. Many people favour investing in real estate due to the fact that it is a tangible asset. Real Estate investments generate returns through capital growth and rental yield.

Share Market | You can buy little pieces of publicly traded companies – these are called shares. When you purchase a share of a company, you are purchasing a tiny little bit of ownership over that company. This means when the company grows, the value of you share may increase, this is called capital growth. As an owner you will also receive part of the profits of that company, these are called dividends. The share market is typically a volatile type of investment with sudden upwards and downwards swings. It is for this reason that it is generally not a wise asset class to invest in if you have a short term investment horizon.

Cryptocurrency | Cryptocurrency is essentially a digital currency that can be used to buy and sell things. Examples of the most common types of cryptocurrencies are Bitcoin and Ethereum. Unlike other types of investments crypto has only really burst onto the scene in the last ten years. This means that we do not have centuries worth of data on returns so it is extremely difficult to predict how crypto is likely to perform in the future. It is the most volatile out of these different asset classes due to large amount of uncertainty that surrounds it.

5. Build Your Portfolio

Remember, when creating your investment plan, diversification is your friend. In simple terms, diversification means not putting all of your eggs in one basket. For example, if you were to invest all of your money into one investment, you would be in serious trouble if that investment performed poorly. Whereas if you were to spread your investments over different asset classes, countries and sectors, you may be able to reduce your overall risk by preventing overexposure to any one asset.

Now that you know what asset classes you want to invest in, its time to select your individual investments. For example, you have decided that share market is for you, but what shares are you going to invest in. This is something only you can decide for yourself. Never let anyone tell you what to invest in – it is your money and your decision. There are plenty of tools online to help guide the selection of your individual investments. If you feel out of your depth, there is absolutely no shame in seeking out professional financial advice to help you.

Investments selected. Tick. Now it’s time to purchase those investments. Cash investments can usually be made through your bank in the form of savings account or term deposit. You should be able to find more information on the latter on your banks website.

For investing in the bonds and stocks, I recommend using Pearler. They are a low cost investment platform that preaches investing for the long term as opposed to short. They also have some really amazing features that you can learn about here in my review of Pearler. HINT: If you sign up using my link, you will get a free first trade upon signing up. You can also check out my full review of Pearler here.

Finally, if you are looking to invest in cryptocurrency you can do so through Swyftx, they are an Australian cryptocurrency exchange where you can buy and sell cryptocurrencies. With relatively low fees compared to other crypto brokers and good security features, they are a great choice for those looking to buy and sell crypto.

6. Monitor Investment Portfolio

Now that your investments are set up, your next step is to monitor and track their performance. Tracking the performance of your investments will give you a good insight into how they are actually performing.

Without monitoring or tracking your investment portfolio, you essentially don’t really know how they are doing. Of course how you track your investments will vary based on what type of asset classes you invest in but an easy example of how to track your investments is through using a spreadsheet. On a very basic level, by keeping track of the purchase price of your investments vs what they are valued at currently, you can gain an idea of their performance.

There are also a wide range of apps and softwares out there that are designed to help you by tracking your investments for you. One of my personal favourites is the Sharesight portfolio tracker. It makes tracking your share portfolio easy through providing automatic holding updates and tax reporting in an all in one easy to use system.

Investment Portfolio Tracker


Creating an investment plan can seem overwhelming to many, but it doesn’t have to be. If you break the process up into small, actionable steps, creating an investment plan is something that can be done by anybody. If you hit any roadblocks on the way, there is no shame in seeking out advice from a financial advisor.

With the exception of qualified financial advisor, taking advice on exactly what to invest in should be avoided. Everyone has different factors, parameters and investment horizons that will change thinks like your risk tolerance, goals and more. Its your money – what you chose to invest in is your decision.

Don’t rush the process! Whilst creating an investment plan generally isn’t something that takes an exorbitant amount of time, it is also not something that should be rushed. Take your time and get it right!

One last things from me, investing or creating a plan to do so shouldn’t be a chore. Make it fun! You are deciding which assets you are going to buy to make you more money. Are you going to become a part owner in Tesla or are you going to become a landlord? The prospect of both should be exciting to you. Of course achieving large returns is the number one priority, but you can have fun along the way.

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