Generally speaking, the riskier an investment, the higher its expected return will have to be in order to entice investors. Determining how much risk to accept in your investment portfolio depends on two broad factors:

An investment plan can be beautiful on paper, but unless you put it into effect it won't help your financial security one bit. This brings us to a truth about investing: for every investor who fails to reach a goal because of making "bad" investments, there are several others who fail because they didn't invest at all. They had a plan that called for making systematic investments over a period of time, but somewhere along the line the planned investments were not made.

Whether you're a novice at investing money outside your own business, or a seasoned investor, you'll do well to consider your investment goals before you plunk down any money. As is the case with most things in life, it's hard to know what to do — and to evaluate how well you're doing it — unless you have a clear idea of what you're working toward.

The first step in creating an investment plan is to take stock of your current personal financial situation: your assets and your liabilities.

Our discussion of investment planning will set out the basic principles of our recommended process. This process is meant to be as simple and understandable as possible. But, because it is a process, it assumes that you will go through certain preliminary steps that focus on your personal situation, goals, and investment preferences before you move forward to focus on selecting appropriate investments for you.

The level of compensation you draw from your business undoubtedly will vary widely due to the ebb and flow of your personal and business needs. If your business is structured in any way other than a C corporation, the business profits "flow through" directly to your personal income tax return. Since your compensation isn't technically a deduction for the business, it won't be attacked by the IRS as unreasonable. Similarly, you do not have to worry about allowing too much profit to accumulate within the business, as you do with a C corporation.

If you are like many small business owners — particularly those just starting out — you have a large portion of your personal assets invested in your business. This may be necessary and advisable now, but as your business develops, it will become prudent to branch out into more general and diverse investments as well. At some point, this will be true even if the additional income to be gained from continued heavy investment in your company would exceed the investment return that you could get on any "outside" investment.

Another way of getting money out of your business at a minimum tax cost to your family is to employ your family members. This is particularly effective if you employ your children, who are nearly always in a lower tax bracket than you are. However, you can't just hand out paychecks to relatives who don't actually perform work for you. Any family member that you hire must actually perform legitimate jobs for your business—jobs that they are qualified to do.

In the early stages of your business, you may be investing in the business first and paying yourself later on.

One widely used method for building personal wealth is for you to retain any real estate used in your business in your own name. Then, you let the business compensate you not only for your service as an employee, but also for your financial risk as the owner of the property.

Dividends sound nice. You buy a stock, it pays dividends, and you're a happy investor. In fact, if you own a C corporation and the corporation owns stock, a whopping 70 percent of the dividends your company receives from those investments are excluded from taxation (if your company owns less than 20 percent of the company whose stock it holds/)

As tax-favored, wealth-building vehicles, retirement plans are hard to beat for providing tax-deferred compensation for you and your employees. Contributions to a qualified plan are deductible by the business, but not taxed to the individual until distributed at retirement when most people are in a lower tax bracket. And, income earned on the plan assets accumulates on a tax-deferred basis as well. Moreover, profits can be taken out of a corporation without being subject to tax at the corporate level.

Life insurance is the last of the late, great tax exempt sources of cash. The group-term life policies used as a basic fringe benefit are fine, as far as they go. But in the case of most business owners, the coverage provided is inadequate to meet their financial responsibilities. Yet individual, permanent life insurance is a luxury few can afford to buy with after tax dollars. "Split-dollar" life insurance was developed to fill this gap.

Legitimate deductible expenses permitted for travel, meals, entertaining clients, automobile expenses and the like, if properly claimed and documented, give an owner many advantages not enjoyed by regular employees. Considerable benefit can be gained through the use of deductions for company cars and expense accounts, as long as they are supported by extensive documentation that substantiates their legitimate business purpose.

What are loans from your corporation doing in this list? Loans aren't compensation, are they?

The value of fringe benefits can enhance your total compensation enormously. Many benefits have the advantage of being deductible to your business, but not taxable to you. Among the benefits that are deductible by your business but excluded from your taxable income are medical and dental coverage, long-term care coverage, flexible spending account salary reductions, some educational benefits and group term life insurance up to $50,000.

If your business is structured as a sole proprietorship, you will not receive a "salary" or a "draw." Instead, you will report as income on your Form 1040, the amount of net profit or loss from your business (as determined using Form 1040 Schedule C, Profit or Loss from Business.) At the end of the tax year, what you do not spend on the business, is income to you — even if you put it all into a savings account.

The poet said, let us count the ways — but we like to add "to get money out of your business." And they abound. The form they take often depends on which structure you choose to operate your business: sole proprietorship, partnership, limited liability company, C corporation, or S corporation.

Bonuses should follow the same general guidelines used for salary with respect to compensation for C corporation owners. However, it's a wise policy to avoid paying yourself a large, last minute bonus at the end of the year. The timing is often as important as the amount when it comes to raising red flags for a tax auditor.

How to get money out of your business . . . the entrepreneur's eternal quest! Since you're in business for yourself, you can pay yourself what you always knew you were worth or you can elect to plow cash back into growing your business. Of course, investing in the growth of your own business is also a way to build your personal wealth, although doing so sacrifices some portfolio diversity.

Financial planning can be described as a system that enables you to identify and reach your money-based goals by making wise lifetime decisions about how you make money, how you invest it, and how you spend it. This differs from estate planning, which is concerned with how you transfer your wealth at death

What if you have created a personal wealth-building plan and have read through the discussion on implementing the plan, but you can't get over a nagging fear that you may have forgotten something? Because of this fear, doing nothing may feel more comfortable than moving forward. But, remember our rule: "Don't procrastinate!"

You probably won't feel much pressure to change your wealth-building plan if your planning computations show that you are on track to reach your goal at the desired time. If you'll end up with more money than is needed to fund your plan, you can redirect excess savings for other purposes, or merely "let it ride" against the eventuality that somehow the goal will turn out to be more expensive than you thought. In any case, you probably don't have a situation that needs to be addressed in a big hurry.

Nothing lasts forever; certainly not a personal financial plan. If you have invested the time, effort, and money needed to implement your financial plan, you definitely don't want changed circumstances to make your plan obsolete.

To compute your after tax yield on an investment, you'll need to your tax bracket (marginal tax rate) and the stated, pre-tax yield of your investment. The formula for determining the pre-tax yield you'll need to equal a particular after-tax yield is: