Personal financial planning incorporates several important steps, which separately and mutually predetermine the success of the venture. First of all, one should determine the current economic situation and set financial goals. Next, it is necessary to identify alternative courses of action and evaluate them carefully. Further, it is crucial to create and implement a financial action plan. Finally, it is necessary to revisit this plan regularly and make alterations to it in case the personal circumstances change (Billingsley, Gitman, & Joehnk, 2017). Investing plays a significant role in the process of personal financial planning since it is a long-term perspective (Billingsley et al., 2017). Hence, by thoroughly analyzing one’s investing potential, it is possible to predict financial gains and avoid losses in the long run.
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As well as any other process involved in financial arrangements, investment requires careful planning. The most successful outcome of investment planning is the generation of an investment policy statement (Tillery & Tillery, 2017). This statement serves as a guide to outlining the individual’s investment objectives. The investment policy statement includes asset allocation, risk tolerance, financial goals, current financial condition, and investment time horizon (Tillery & Tillery, 2017). Out of the accessible investment vehicles, mutual funds are currently the most popular. The main advantages of using mutual funds are the reduction of risk, the convenience of pricing, and the reinvestment of dividends (Kwon, Lowry, & Qian, 2017). Meanwhile, some disadvantages also exist, such as tax inefficiency, high expense ratios, and slow trade execution.
Without giving careful thought to investment planning, one risks losing certain financial opportunities or putting one’s assets under threat. The use of mutual funds is an essential element of promoting the success of individuals’ goals and objectives. At present, mutual funds are the most popular means of investing, but individuals and firms should carefully analyze the pros and cons of each deal. Despite having some limitations, mutual funds offer many benefits for investors.
Billingsley, R., Gitman, L. J., & Joehnk, M. D. (2017). Personal financial planning (14th ed.). Boston, MA: Cengage Learning.
Kwon, S., Lowry, M., & Qian, Y. (2017). Mutual fund investments in private firms. Journal of Financial Economics, 136(2), 407-443. Web.
Tillery, S. M., & Tillery, T. N. (2017). Essentials of personal financial planning. Hoboken, NJ: John Wiley & Sons.