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Create your investment strategy in four simple steps

In my experience, those with a plan or strategy can avoid bad decisions and make fewer mistakes. 

An investment strategy can be your plan to use for building wealth through investing. A way to think intentionally about how you will do it and what you will do to make it happen.

When I’ve talked to people and they mention they want to ‘invest’ or do something with their money here are some common reasons:

  • do more than earn 1% interest in a bank account
  • they know someone who has struck it rich buying a property
  • read an article on someone who's made money investing
  • seen the 1001 posts on social media about it.

The theme is mainly that they want to take their money to that next level.

Awesome. It's possible for everyone to get rich and investing is a great way to do that.

It's easy enough to copy what someone else is doing, but it's important to realise while investing can be easy enough to do that it's worth spending time understanding your situation. How it will fit into your life.

It’s time you do it your way, and that means having a hard think about what your why is. 

But first – what is your why?

You don’t want to invest just to make money, do you?

If it’s about money, then it’s just a maths equation: add in X, let it sit for then take out X + Y. That’s the math of it but I know it’s not the numbers, graphs, returns, or income that interest you.

But really it’s about what you want to do with that money.

What is important to you right now or is the thought of having that is making the thought of more money appealing?

It’s much more tangible than that. Something way more exciting.

It will be something like freedom, convenience, relationships, security, luxury, or self-improvement. 

Finding the clarity on why you want to invest will make it much easier when you live through the difficulties of the process.

By nature, our emotions will impede what can be a formulaic and methodical process.

Having that why, that purpose, that motivation will put your investment efforts into perspective and make your ambitions more real. 

Before you are ready to invest, consider these steps to get clear on your goals.

Get specific

Start thinking about what you want to get out of your investing.

Try not to say “a million dollars”. 

A million dollars isn’t why you invest, it's a result of your investing.

Your why are your dreams, your goals. Investing your money will get to achieving these goals. 

So think beyond just making a million dollars. What will you do with that million dollars?

Have a think and work out exactly what your ideal lifestyle might look like

  • House in the country?
  • Holidays every six months?
  • Live overseas?
  • Art studio at home?

These are the opportunities that you will use your money made via investing available to you.

So nows the time to quickly list out your “one-day” dreams.

“one day I want to…”

Finish that sentence a few times.

These are the reasons you will be investing.

Oh, and think big!

Not just a new car, the exact dream car you've never ever thought of possibly owning.

It's surprising how quickly you can reach those mediocre goals so make sure you have lofty heights.

Make sure these are your dreams

While you're thinking, make sure you don’t worry about what others are doing.

What others are doing has nothing to do with you. Don’t judge your life on what is popular and makes others happy. Set your own targets. 

Your goal can be retirement, holidays, lifestyle, luxury, etc. you can invest in multiple things in different ways. I’ll show you how in the following chapters.

What you need to know now is why do you want to invest? Why do you want to change?

Create a why statement

I’m investing to _____ so that ____ ( be specific).

I’m investing to live overseas for a year so I can experience a new culture. 

You can create multiples of these as you may find each has a fresh start and end date. 

These might be like your savings goals but more for the longer term.

Think decades rather than weeks or months. 

My Why (An example)

So I’m transparent and can show you an example, here is what my why is and why I invest the way I do:

  • Buy a family house we love so we can live in it while the kids grow up
  • Retire to a house on acreage so we can enjoy the beautiful countryside
  • Travel overseas every four years so we can experience other cultures
  • Up skill ourselves through short course or online courses so we can continue to grow intellectually
  • Give the kids the best education so they have access to their passions
  • Maintain a quality wardrobe so we can keep confident in our appearance
  • Be generous with money and gifts so we can enjoy the feeling with our friends and family

We now turn each of these into goals that have target dates and dollar values that I’ve estimated allocated to them so we can have them come true.

Clarify your goals or objectives (Your Why)

Through the reading above you should hopefully have a why statement or a few goals you want to achieve.

An example of those goals might be:

  • Live overseas for a year when the kids graduate
  • House deposit in 5 years
  • Financial independence by 45
  • Pay for a wedding in 18 months
  • Pay for 2 kids to go to private school

These can be your goals. Make sure each goal has a time or date. This makes it much easier to have the right strategy in place when we go through the framework which we are about to do.

It’s important to know when you want to achieve your goal. Is it a house in 5 years, kids’ education in 10, retirement in 25? We’ll be working backward so make sure you know. 

Let’s create your winning investment strategy

Now we have found your dreams and goals and turned them into a few “why” statements, it’s time to add these to the framework that will give us our investment strategy.

For the sake of these examples, I will explore goals that are non-retirement related. These are not pre-tax-based savings like superannuation.

1 – Get your maths right

  • How much do you have now set aside?
  • How many years until you need it?
  • How much you’ll save each month?
  • Rate of return?

You might already have some money saved, but the real growth will come from your regular contributions to your investments. On top of what you have to invest with ($0 is fine).

The first two measures should be obvious, and the investment should set the rate of return you will make with the money. E.g. savings account – 2%, bonds – 5%, stocks – 7%. 

Using a tool like the MoneySmart Savings Goals calculator makes it easy to work out how much you must save each month.

Here is an example of me saving $15,000 for a car in 3 years

I need to save $410 a month if I was keeping the money in a cash account earning 1%. 

You may get stuck here as there might be a goal you really want sooner, but you must save a higher amount than you thought.

If so, you might need to make some big decisions, that might lead you to:

  • Earn more
  • Sacrifice your lifestyle
  • Change your timelines. 
  • Set yourself 2 goals instead of 5

2 – Decide on the right asset allocation

So now we know how much and for how long we have, but what do we invest in? 

You might think – shares, property, whatever gives me the best return!

This is where the other R word comes into it – risk. 

As you saw above, I assumed 2% was my rate of return over the 3 years.

The 2% return was assumed based on me allocating my savings to a cash asset. I put it into a cash account which is a low-risk but low-return asset.

You also must decide what asset allocation you take with your investment strategy.

Asset allocation is where you pick an asset class – shares, bonds or cash for example – that is balanced based on your risk and reward appetite. Each asset class has a different level of risk and reward, which is picked based on your investment horizon and risk tolerance. 

Shares and stocks have a prime opportunity for a higher return of say 7%+ but expect volatility that fluctuates the price of your investment. Meaning there is a risk it could drop when you need it. 

Chart from

Assuming you have target dates for each of your goals, you can make a good assumption of what method of investing is right for your investment strategy.

  • Need the money under 5 years? – Cash is safer (1-2% return a year)
  • Need the money in 5-10 years? – Bonds can give you 3-5% return without too much risk
  • Need the money in 7+ years? – Start looking at stocks that can average 7%+ or property, but beware the volatility of growth. 

Because of the different timelines, your goals may have, we want to get the balance of what we invest in right so we don’t risk it for when we need it, but also that we gain a decent return. 

If you’ve seen what it invests your superannuation in, it’s most likely a mix of stocks, bonds, and cash. Here the super funds look at your years from retirement and diversify the different assets so you can still get good growth without risking it all. 

An example

If I'm buying a car in 3 years, I wouldn’t risk investing the money in anything but cash as I’ll need the money soon so am happy with it being preserved even if it's a low-interest rate compared to shares. 

You can also invest in a blend of the asset classes for each of your goals. An excellent example is a house deposit.

If you wanted to save $100,000 in 10 years' time, you could put 50% of the money into stocks and 50% into bonds. You would sacrifice some potential reward here by having only half the savings in stocks, but half in bonds will keep things smoother for you.

Now think about how you will allocate your savings for each goal and define the asset classes. 

Read more about asset allocation at the MoneySmart website or watch this video on diversification.

3 – Find the right product

Now you know your timelines, what assets you’re thinking of investing in which means we can now talk about how you get started. 

This means finding a product to use.

When picking products I like to first find products that are a good cost. Not only in money, but in time. 

Two abilities I like to for any tool in my investment strategy are:

  • They are minimal cost 
  • Investing with them can be automated

Optimising your investment products for cost investment products is a big way to gain control of your investments as you can’t always control the returns.

If you get a good low-cost base and set up a system where you don't need to manually inject money, it sets your investing trajectory.

The brilliance of the era we live in is there are now apps, tools, and sites that give us the opportunity to invest and build wealth without paying someone to do all this. We still can work with an investment advisor, but if you are confident in what you will invest in, then you can find the product yourself. 

Here are a few examples of products that are cheap and can be automated. These are all products I own and use so have experience using them all. 

Cash investments

High-Interest Savings account

Bonds & share assets

Please do proper research of these products as each has its own features and benefits. All are what I'd call cheap and able to be automated.

Once you've found your ideal product, you are ready to get going.

By now though you should have a method in place for you to invest

  • Goal
  • Time frame
  • Amount to invest regularly
  • Product to use

There is your investment strategy- time to get going! Set it all up and begin your investment journey.

Wait. There’s one more step. 

4 – Behave

You are now all set up to achieve your financial goals through investing.

What’s important is that you behave while you do so.

Put your plan into effect, automate your savings and leave it. Don't touch it. If you did the maths right all you need to do is let it happen.

You need to ignore the media, conversations and self-doubt. If you have done your research, planned you why what, and how then the surrounding noise will be a problem.

Something will trigger you. Like:

  • Hearing someone winning big with property
  • Bitcoin going up 1000%
  • A stock tip that’s a ‘sure bet’

Hearing other investment successes will probably motivate you. And they should motivate you to keep at your own goals, but more likely they will motivate you into fear of missing out or seed doubt on your original investment decisions.

What others are investing in and how is up you them. You have your own investing plan. No one else has the same goals that you do. 

Everybody’s situation is unique and only you know what your dream life should be. 

Most media is short term focused, you are longer term focused which gives you more control. A drop in price is not a reason to change tact. 

The message here is to ignore the noise. 

What does your investment strategy look like?

With investing, its easy to throw some money into something and hope that it pays off.

It's another thing to put in place a plan that has your financial goals as the number one priority.

What does your why, what and how look like?

Here are couple examples of mine I'll share

Goal Overseas Holiday with Kids
Time frame travel in four years
Regular contribution $200 a month
ProductRaiz (conservative portfolio)
64% bonds and cash / 36% stocks

GoalHouse Deposit
Time framespend in 10 years
Regular contribution$400 a month
ProductVanguard Diversified High Growth Fund
85% stocks / 15% bonds

These are simple and fit on an index card. No need for anything over the top or complicated.

You can stick them up or file them in a place that brings meaning to what you are doing.

Invest with intention

Investing is something you can “wing” and work out what you're doing as you get going.

That's fine, but it's beneficial to your future self to go into it with an idea of why you are doing it.

Is it to set yourself up for early retirement, to make a bit of quick money or just for something to experiment with.

At a minimum you'll find greater purpose if you just write a few of the why, what and how done as you do it. Set yourself up a path to go down and it's likely you might get to where you want to be.

If you need help then have a look at my course on investing for beginners, the New Investor Bootcamp.

Tim Ellis

Tim is the founder of DadInvestor where he helps people take their next steps in personal finance and investing. He provides in-depth guides, online courses, tools and personal coaching.