If you have 20 investment advisor brochures sprawled across your desk and hundreds of investment products jumping out at you, you have chosen a backwards approach to financial planning. When you go to the gym, do you stare at all the exercise machines wandering what they do and how they will help you meet your fitness goal? Or do you develop a fitness program with each exercise designed to meet a fitness goal – the exercise bike to get your cardio going, the crunch machine for abs, and so on?

Developing a successful investment plan is not unlike developing a personal training program. If you hire the hot new fitness trainer at your health club, the first thing he will do is assemble a profile on you based on your age, risk profile and the resources you have to commit to a fitness program.  Your fitness needs at 30 years old will differ greatly from those at 60 years old. An investment planner performs the same type of assessment of your financial health. Before she can recommend an investment plan, she needs to know your age, risk tolerance, and the time horizon until you retire.

  1. Determine Your Retirement Goals

How much money will you need in retirement? This is the most important question you will answer. If you need X amount of income to retire but your plan will generate less than that, then you need to revise your investment plan. Jumping back to the fitness analogy, if your goal is to lose 10 pounds but you are only doing 15 minutes of aerobics a day, you will likely not fit into that little black dress before the big event. A retirement calculator such as the DBS Retirement Planner can help you determine what type of monthly payments you should be making. But first, it will help you determine how much money you will need in retirement to live comfortably.

All successful investment plans start with this one question: How much will you need to retire? Put simply, how much money will you need per month to maintain your consumption patterns in retirement?  This will tell you how much you need to put into retirement savings each month and the return you will require on those investments.

Read: 6 Questions to Ask When Planning For Retirement

  1. List Your Financial Goals

Before retirement, though, you will have many nearer-term financial obligations. They may include your wedding, college, and further down the road your children’s college education and weddings. Your investments should be structured to also meet these different life stage goals.

Short-term goals – are financial payouts you will be making within the year (an engagement ring, college tuition).

Intermediate goals – are financial obligations you will face over the next three years (a down payment on a house, a home renovation)

Long-term goals – are more than 10 years in the future (retirement savings, a one-year sabbatical).

  1. Establish Your Risk Tolerance

Great, you say, a few high return investments will take care of my financial goals. Hold on! Sure, you can choose a high yield bond fund with a 20 percent return. Yippee! You will reach your retirement goal in 25 years. Trouble is, the high yield bond fund provides a high return because there is a high risk of default – that is, the underlying companies have to pay you high yields to borrow money because they are not in the best financial shape. They could go bankrupt and pay you a small percent of your investment, or nothing at all. If you are 25 and making a good income, you can allocate a modest percent of your portfolio to high risk, high return investments. If you are 55 and have a middle income salary, you cannot afford to lose any of your retirement savings.

On the other end of the risk spectrum are those who are too conservative. They have parked their money in a savings account, even though savings accounts have been paying zero or low interest rates since the 2008 financial crisis. This group of nervous Nellies could still stay within the conservative risk spectrum while transferring money they do not need in the short term into certificates of deposit, money market accounts, and value mutual funds. To sum up, first, you need to determine your risk profile. Then, you can choose investments that match your risk appetite.

Determine your time horizon. When will you need the money? Are you retiring in 10 years or 40 years?

  1. Decide on Your Portfolio Allocation

Many retirement savers saw their portfolios devalued when the stock markets declined on August 24th, led by a 1000-point fall in the Dow Jones Industrial Average.  The decline was triggered by a slowdown in the Chinese economy. Younger investors were more apt to have higher exposure to China and other emerging markets in their stock portfolios. They are more resilient and able to ride out these temporary market fluctuations. Older savers, on the other hand, have less time to recover from market drops, and thus should have lower exposure to stocks. They should gradually shift their allocation of stocks and bonds to be weighted heavier in lower risk bonds.

Kiplinger’s has assembled 22 hypothetical portfolios that well represent the popular asset allocations recommended today. More investment advisors, whether through robo-advisors or in-person advisors, are recommending diversified portfolios of low cost exchange traded funds (ETFs).

Compare the Aggressive Portfolio That Is Heavy on Stocks: * for long-term investors who want to build wealth * stocks: 80% | bonds: 15% | alternatives: 5%

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With the Kiplinger 25 Portfolio, Short term Goals (3-5 years away): * for no-load fund investors with short time horizons * stocks: 35% | bonds: 60% | alternatives: 5%

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  1. Check Fees and Hidden Fees

Fees can quickly eat away at your investment returns. Many low and no fee options are available. If you are using an investment advisor, ask her to write down all fees involved. Some brokers are paid for recommending certain investment products. These products may not always be the best products for you from a return, risk or fee perspective.

Whether you develop your own investment plan or use an advisor, educating yourself on all steps of the process will help you develop the most successful investment plan.

Find out How to Calculate the Amount You Need for Retirement.

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