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January 15, 2025, vizologi

How to Make Shares Fit Into Your Overall Financial Plan

Most people’s financial goals revolve around acquiring money to fund their living costs and future needs. While a popular way of building wealth and capital is by saving a percentage of your income once the paycheck rolls around, there are several other passive ways to grow capital.

One popular method of capital growth is to invest in stock shares from public companies. These stock shares rise and fall based on market conditions and economic variables. Historically, many of these well-performing stocks rise in value, which directly increases the value of your capital as well.

With the right stock investment strategy, you can gain more capital over time. This can help you reach your financial goals faster than you would otherwise have taken. If you’re interested in incorporating shares in your financial portfolio, read this article for valuable insights on growing your wealth with a mindful placement of shares.

Let’s start.

  1. Label and Plot Your Financial Goals

When building your wealth, it’s essential to exercise discipline and strategic thinking. Accumulating your wealth by saving money is a reliable way to grow your net worth, but you may also leave some money out of the table by just saving and saving.

To optimise your finances, you should strive to create proper goals to track, manage, and allocate your finances effectively. This doesn’t only mean budgeting your expenses, but also putting your money in the right investment vehicles to increase your odds of hitting your set of financial targets.

A good goal-setting approach is following the SMART goal-setting method. SMART is an acronym that stands for specific, measurable, achievable, relevant, and time-bound. Creating multiple financial goals using this framework allows you to identify your most pressing financial goals, create a priority order, and follow a plan of action to work towards it under a specific timeline.

An example of a SMART goal in the context of stock investing is to invest $10,000 in an ASX equity fund within six months and exit the position once the return reaches 8% or higher within the next five years.

This goal ticks all the boxes of the SMART goal-setting method, which can help you more clearly define and achieve your financial goals in a reasonable timeframe. Of course, you’re free to adjust your goals based on your life circumstances accordingly.

  1. Create A Financial Allocation Breakdown

Another crucial aspect of effective stock investing is formulating an ideal breakdown of your stock investments in relation to your overall net worth. 

Good financial management entails categorising your income across various financial buckets. These buckets include savings, expenses, debt repayment, investments, and so on. 

To make an effective financial allocation table, you’ll need to consider your income and lifestyle first and foremost. A good cushion to set for monthly living expenses like rent and food is around 50% of your monthly income. 

Putting 20% into savings is a good way to securely park some funds for future use, and anywhere between 10-20% for investments is ideal for potential growth. The rest of the money can be for discretionary spending on hobbies, splurges, holidays, and whatever you’d like to spend it on.

By creating a consistent funding timeline for making investments, you’ll be able to slowly grow your funds by following the principle of dollar-cost averaging

This consistent investing method allows you to slowly and sustainably increase your stock share allocation, all while mitigating risk and optimising returns through a diversified timeline. 

Of course, it’s important to consider everyone’s different financial circumstances, so ensure that you’re not investing more than you’re willing to lose to fund your daily lifestyle. 

By optimising your stock allocation, you can grow your finances and reap the rewards—especially in a bull market. It’ll also allow you to systematically control and manage your funds more easily, which can help keep your finances in good shape now and for years to come.

  1. Select The Optimal Risk Appetite

There are several techniques and strategies you can consider when selecting and investing in stocks for your financial management portfolio. The best strategy to pick, however, will depend on your own financial well-being and cash flow. 

The best strategy for you will also dictate the degree of risk that you should ideally undertake when acquiring shares of stocks. There are three main risk levels: high-risk, moderate-risk, and low-risk. 

High-risk investing entails investing in high-risk stocks that have high volatility—meaning it can go up and down considerably. 

Low-level risk have steady returns through dividends and an increasing stock price, but growth is slow and can take years before you can consider pulling out for substantial returns. Moderate-level risk falls somewhere in the middle.

When picking shares to invest in, take your willingness to indulge in risk into consideration. Generally speaking, if you have a lot of capital to work with and are fairly young, you can opt for a larger portion for moderate to high-risk stock investments. If you’re nearing retirement age, putting money in low-risk investments may be a better strategy.

In any case, you can also consider diversifying and mixing up your investment choices. By having multiple investments and tweaking them based on your financial profile, you can make it more likely for your future self to be financially sound and secure.

  1. Diversify Your Investments

When choosing stock shares to invest in, you’re bound to see many options across various sectors, industries, and regions. For instance, the Australian Stock Exchange alone has over 2,200 individual stocks. 

It can be overwhelming picking a few standout choices from the bunch—but the good news is that picking multiple stocks is not entirely a bad strategy. It’s a perfectly sound and viable strategy to put multiple eggs in your basket—a process commonly referred to as diversification.

Diversifying your stock investments allows you to reduce the risk of an equity catastrophe if your main stock goes under. This is because other stocks or asset classes help minimise the volatility of price movements. 

Investing in international stocks and ETFs helps hedge against volatile stocks or stocks under a certain market exchange. This strategic approach can help you grow your capital in a steady and sustainable way without much risk—making it something that can benefit the vast majority of traders.

  1. Have a Liquidation Strategy

Finally, it’s essential to strategise the best time to pull out and liquidate your stock earnings. A well-planned liquidation plan ensures that you can realise your gains when the time is right. Proper timing also helps minimise the impact of market downturns and tax obligations.

An underlying goal precedes your strategy. Is your aim to fund a short-term goal like a car purchase or a long-term obligation like your child’s tuition? Do you intend to actively participate in trading your stocks or would you prefer taking a backseat in these transactions?

Depending on your answer, your liquidation strategy may differ. If you’re invested in a particular industry that’s doing good at present, such as agriculture, you can liquidate a portion or the entirety of your stock holdings. 

You may, for instance, find it favourable to start selling your Wesfarmer employee shares with SharesSalesDirect or other platforms to harvest some returns. 

Furthermore, certain economic conditions may make selling at a loss more favourable, such as if you’re planning to offset your gains with one share with losses in another share.

In any case, creating a liquidation strategy is essential to ensure that you stay in the right track and know where you’re headed with your finances. We hope these tips will help guide you to future financial success. Happy investing!

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It generates limitless business ideas, gains insights on markets and competitors, and automates business plan creation.

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