Category Archives: Goals

Investing Goals, Risk and Time

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“Our goals can only be reached through a vehicle of a plan in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” Pablo Picasso

Every successful investing journey starts with a set of clear goals, whether they’re as big as financial security during retirement or as small as what’s in your garage. It’s important to determine what are your investing goals.

Financial Security is a great investing goal

To be a successful investor, start with establishing your financial goals and evaluating your personal tolerance for risk before putting your money to work for you. Saving and investing work together depending on your goals and when you think you’ll need the money.

Setting Goals

Studies have shown you’ll be 42% more likely to achieve your goals simply by writing them down on a regular basis.

Investing is about growing your money, but to do that effectively, you have to know what you want to accomplish. It is important to lay out your short-, medium- and long-term goals. Write them down. You become 42% more likely to achieve your goals and dreams, simply by writing them down. Then, give them a time frame and put a dollar figure beside each. For instance, a short-term goal might be a vacation. A medium-term goal could be a down payment on a house. The number one long-term goal should be retirement.

In financial planning, writing down a goal first requires articulating what you want to achieve. Here are several questions you can ask yourself to help define your goals:

  • Am I adequately preparing (or prepared) for retirement?
  • Do I want to buy a house or make some other large purchase in the future?
  • Do I want to strike out on my own, either professionally or personally?
  • Do I want to set money aside for a child or a dependent? For education or something else?
  • How important is building a financial legacy I can pass along to future generations?

Use these questions to come up with specific, measurable goals. For example, if you’re saving for a house in the future, your goal can be to save 10% of your annual income for the next 5 years to put toward a down payment.

Once your goals are established, you can begin to make your plan to achieve them. Having tangible goals are a good motivation to keep saving and investing. But, before you put any money in the stock market, set aside enough cash in an emergency fund to cover three to six months of essential living expenses.

Of course, revisiting these goals on an annual basis to check on your progress and adjust if necessary is just as important as the initial plan itself.

Investing for the Future and Growing your Money

Investing is about putting your money to work for you with the goal of growing it over time. Here’s an example. If you put $3,000 each year in a savings account and earn 1 percent, at the end of 20 years you’d have about $67,000. If you invested that same amount of money and got an average 6 percent return over the same time period, you’d have nearly $117,000.

The sooner you start saving the less you may need to save because your money gets to work that much sooner. The more you save, the more you have to invest—and the more those returns can add up.

That said, you do want to stay involved. Check your portfolio at least once or twice a year to evaluate performance and to make sure your investments still match your goals and feelings about risk. And try to keep a long-term view.

Broad-based mutual funds and exchange-traded funds can form the foundation of your portfolio. Be sure to research fees and performance.  Broad-based mutual funds and exchange-traded funds (which pool the money of many investors to purchase a variety of securities) give you a simple way to begin. Funds help you automatically invest in a variety of stocks and bonds so you don’t put all your money in one investment (which is much riskier than owning several investments). Do a bit of research on performance and fees.

It’s one of the best ways to build your financial security, as much as you can on automatic—savings deposits, retirement contributions, even automatic monthly investments into a fund. The less you have to do, the less overwhelming it will be, and the more likely you are to stick with it.

Managing Risk

Sometimes, the best trade is the one you don’t make.

All investing–stocks, bonds, cash and real estate–is subject to risk, including the possible loss of the money you invest. And the stock market particularly will have its ups and downs. But there are ways to mitigate that risk. The key is to choose a broad range of investments in stocks, bonds, and cash based on your risk tolerance and time horizon and never put all your money in one particular stock or asset class.

Risk, unfortunately, is the scary part of investing, and there’s no way to avoid it completely. So it’s important to think about how much risk you’re taking on with each investment.  It’s also important to understand that risk and return go hand-in-hand: often the greater the potential return, the greater the risk.

The more money you invest, the greater the possible reward and the higher the risk of losing some of that money.  However, if you do not invest, then you cannot grow your money.

It is generally true that the greater the risk, the greater the potential rewards in investing, but taking on unnecessary risk is often avoidable.  Risk measures the uncertainty that an investor is willing to take to realize a gain from an investment.

There are different varieties of market risk investors should be aware of and they can originate from different situations. There is liquidity risk typically caused by central banks, headline risk due to wars and terrorist attacks, insurance risk, business risk, default risk, etc. Various risks originate due to the uncertainty arising out of various factors that influence the market or an investment.

Risk is the possibility that investors will lose money when they invest in a company and that an investment will result in a loss of principle.  There is a fundamental relationship between risk and return. The greater the amount of risk an investor is willing to take; the greater should be the potential of investment return. Investors need to be compensated for taking on additional risk.

Stocks are on the high end of the risk with small company stocks often more volatile than large company stocks and emerging markets stocks more volatile than domestic stocks; fixed income investments such as bonds are in the middle; cash investments like CDs are on the low end.

Two things will determine how much risk or uncertainty you can handle: your personal feelings and your time frame. If market ups and downs are going to give you a constant upset stomach, you can take a more conservative approach. If you’re able to live with market fluctuations and think long-term, you can be more aggressive.

Time and Tide Waits for No One

One other important factor is time. To protect yourself against market downturns, a long-term approach is essential. It is critical to have time to keep your money in the market and ride out the inevitable market lows. The trick is to stick with it through those lows, keeping your focus on the potential for long-term gains.look at how long you plan to keep your money invested.

Saving for a vacation or the down payment on a home are shorter-term goals best kept out of the stock market. The longer your time frame, the longer you have to recoup any short-term losses that might occur with normal market changes. In general, if you’ll need your money in:

  • Three years or less—Avoid stocks. They’re just too volatile. Consider cash investments like money market funds or CDs instead.
  • Three to five years—It may be appropriate to invest as much as 50-60 percent in stocks, with the balance in bonds or cash equivalents.
  • Five to 10 years or longer—You can add more stocks to the mix.

Four D’s of Investing

The four D’s of Investing are guidelines investors can follow to become better at investing.

Dynamics

  • Start investing early
  • Define your time horizon and prioritize your goals
  • Quantify your assets and determine what is available to support your goals
  • Measure your risk tolerance against your time-frame

Dollar Cost Averaging

  • Investing a fixed amount at regular intervals.
  • Take advantage of the market highs and lows
  • Buys fewer stocks when they prices are high and more stocks when prices are low. 
  • Reduces the dramatic impact of market swings and
  • Enables building wealth over the long term. 

Diversification – “Do not put all your eggs in one basket”

  • Divide your investments among equities, fixed income, and cash
  • Diversify across and within asset classes
  • Avoid concentrated exposure which may elevate your risk

Discipline – “Sticking to a long-term investing approach.”

  • Take a long-term approach
  • Base investment decisions on process rather than emotion
  • Consider costs and tax consequences
  • Review and rebalance regularly

Staying on Course

Here are some tips to help keep you on the course:

  • Remember that paying off debt can be just as valuable as building an investment portfolio.
  • Start saving meaningful amounts sooner rather than later. Let the magic of compounding work in your favor.
  • Control the things that are within your control (e.g., your asset mix, investment costs, etc.). The rest—especially market performance—is out of your hands.
  • Manage how much risk you’re exposed to. Select the appropriate mix of investments for each goal.
  • Seek balance. Maintaining balance is a guiding principle that applies well to investing. In other words, be realistic. Don’t set goals that are too aggressive to achieve. Consider breaking large goals into smaller goals so you can feel a sense of accomplishment as you make progress each step of the way.

Keep in mind, if you have 40 years left to invest, a bear market is noise and should be ignored; in fact, it should be celebrated, since stocks will be on sell. On the other hand, a stock market crash that starts the day after you retire can cause a permanent lifestyle impact if all your money is invested.

References:

  1. https://vanguardblog.com/2018/12/28/struggling-to-put-a-financial-plan-together/
  2. The Huffington Post, The Power of Writing Down Your Goals and Dreams, 2017.
  • Mutual Fund Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
  • Past performance is no guarantee of future results.
  • Investments in bond funds are subject to interest rate, credit, and inflation risk.
  • Diversification does not ensure a profit or protect against a loss.
  • Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.
  • All investing is subject to risk, including the possible loss of the money you invest.

Setting Financial Goals | Mass Mutual

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Every successful investing journey starts with a set of clear goals.

When it comes to planning for your financial future, it’s essential to have clear, concise and measurable financial goals — and a good comprehensive financial plan and strategies for reaching them.  Sometimes the hardest part is just knowing where to start and what is the destination.

Mass Mutual advises clients to set four basic financial goals; two short term goals (Income & Savings) and two long term goals (Retirement & Debt) — using their simple 5-10-15-20 guidelines:

  • 5: Increase your annual income from all sources by at least 5% each year.
  • 10: Save at least 10% (preferably 15%) of your net annual income each year.
  • 15: Target a retirement “nest egg” of about 15 times your annual income.
  • 20: Plan to have your debt (excluding your mortgage) paid down within 20 years at most.

Goal: 5% Income Increase

While many Americans see their salaries increase about 2% to 3% each year, setting the bar higher will help you maximize your biggest asset: your income. Setting a goal to increase in your total income 5% every year, whether it’s through your salary or other sources of income, can make a big difference over the long run. your personal financial situation.

10% Yearly Savings

A good rule of thumb is to save 10% to 20% of your net income each year. This could help you to take advantage of opportunities that may arise, like finding your dream home or investing in a new business venture. It also can provide a cushion in case of emergencies. You can increase the amount you save by setting aside a little more of your salary each month and cutting back on unnecessary expenses.

15x Salary Retirement Nest Egg

As you get older, you’ll have a better sense of your true retirement needs. For now, we suggest trying to accumulate a total of 15 times your current gross annual income for
retirement. The goal is to end up with a nest egg that could generate about 75% of your current annual income each year in retirement.

20-Year Debt Pay-Down

Many of us are burdened with debt, including student, credit card, auto and other loans. By understanding how long it will take to pay down your debt and working towards a debt elimination plan with set timelines, you’ll be better able to manage not only your debt, but your savings and retirement, too.

https://www.massmutual.com/financial-wellness/calculators/establishing-financial-goals

Financial Goal Setting

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“If you are bored with life, if you don’t get up every morning with a burning desire to do things – you don’t have enough goals.” Lou Holtz

Research shows that our brains are a goal-seeking organism.  Whatever personal or financial goals we give our subconscious mind will allow it to work night and day to achieve them. However, one goal isn’t good enough for our subconscious minds.

Some goals take longer to achieve than others, like buying a house or saving for retirement. If you spend years working toward only one objective, you’re likely to get discouraged when it doesn’t happen right away.

But when you have multiple goals you’d like to achieve, goals that align with your values and beliefs, you have more to strive for, and more opportunities to check those goals off your list. And the accomplishment you feel every time you complete a goal will inspire you to accomplish even more of them

Actions overcomes fear

Jack Canfield, author of Chicken Soup for the Soul™, states categorically that “the biggest reason most people don’t achieve their goals and realize their dreams is that they don’t take action, and the number one reason people don’t take action is fear.”

“There is a one thing that 99 percent of “failures” and “successful” folks have in common — they all hate doing the same things. The difference is successful people do them anyway.” Darren Hardy

People whom achieve their goals versus those whom fail has everything to do with overcoming the paralysis of fear versus taking action. The people who achieve great success in life are the ones who are willing to take consistent action toward realizing their dreams. They consistently push through their fear and take steps to make their goals happen, no matter what others may think or say about it.

Goal achievers make countless small decisions, they plan and they take deliberate actions every single day that keep them on target toward achieving their dreams. Because without deliberate action, your goals simply are not going to be achieved.

No matter how ambitious the goals or how brilliant the plans, if you’re not prepared to take deliberate action to reach them, they’re not really goals at all—they’re just dreams.

Start with goals you can achieve

Every successful investing journey starts with a set of clear goals.

Appropriate financial goals for an investor should be specific, measurable, attainable, reasonable and timed with a deadline (SMART). Successful achievement of goals should not depend upon unrealistic or outsize market returns or upon impractical saving or draconian spending requirements.

Defining goals clearly and being realistic about ways to achieve them can help protect investors from common mistakes that often derail their progress. Here we show that:

  • Recognizing constraints, especially those that involve risk-taking, is essential to developing an investment plan.
  • A basic financial plan will include specific, attainable expectations about action steps and monitoring.
  • Discouraging results often come from not following a financial plan, chasing overall market returns, an unsound investment strategy that can seduce investors who lack well-grounded plans for achieving their goals.
  • Without a plan, investors can be tempted to build a portfolio based on transitory factors such as fund ratings—something that can amount to a “buy high, sell low” strategy.

Life financial goals

Make a list of financial goals you’d like to achieve in your life. Be as specific as possible. Include details such as when they will happen, where they will happen, how much you’ll make, what model you’ll buy, what size it will be, and so on.

Keep your goals somewhere you can review them every morning. Put your goals on a poster or piece of paper where you read each night before you fall asleep.

Keep goals at the top of mind, you’ll be more likely to make them a reality. Reaching your retirement savings goals starts with developing a retirement plan. Fidelity Investments has developed a set of retirement guidelines based on 4 key metrics:

  • Yearly savings rate,
  • Savings factor to help you see where you stand,
  • Income replacement rate, and
  • Potentially sustainable withdrawal rate.

“Unsuccessful people carry their goals around in their head like marbles rattling around in a can, and we say goals that are not in writing are merely fantasies.” Darren Hardy

Writing your goals down is the first step in turning your dreams into a reality. If you keep goals in your head you’re not likely to focus and work on them consistently. Thus, it is important to write down all your goals. Whether it’s short-term or long-term goals, it is essential to list every goal in writing.

Writing it down will have a powerful effect on your subconscious mind to help you visualize and achieve your biggest dreams. Remember, a goal is a dream defined and written down.

Make Goals Real by Writing Them Down

Goals are a very effective way to build your self-belief because properly set goals require you to stretch a little outside of your comfort zone; causing you to expand your comfort zone as you achieve the goal.

With clear and measurable goals, investors can create a realistic plan for achieving their objectives within a certain time frame. Make a list of your short-term and long-term savings goals.

If you write down your goals, you’re more likely to achieve them. Think of them as a road map to where you want to go—and make them practical and attainable. Take a simple approach:

  1. Divide your financial goals into three categories: short term (less than one year); medium term (one to five years) and long term (more than five years).
  2. Attach a dollar amount to each goal. For instance, a short-term goal might be a family vacation. How much will it cost?
  3. The more specific you can be, the more motivated you’ll be to work toward that goal.

Goal Attainment Requires Believing in Yourself

Everything you have in your life is a result of your belief in yourself and the belief that all things are possible. According to Jack Canfield, the four most important steps to learning how to believe in yourself are:

  • Believe it’s possible. Believe that you can do it regardless of what anyone says or where you are in life.
  • Visualize it. Think about exactly what your life would look like if you had already achieved your dream.
  • Act as if. Always act in a way that is consistent with where you want to go.
  • Take action towards your goals. Do not let fear stop you, nothing happens in life until you take action.

Incorporate and practice these four steps.

Mistakes Investors Make

One of the biggest mistakes investors regularly make when goals and a plan are absent is to confuse investing with stock picking. Ask many people how their money is invested and they quickly tell you the latest hot stock they’ve purchased and the investment thesis that explains why they think it’s going to take off.

Saving for retirement and building an emergency fund should be the highest priorities, followed by other long-term financial goals, like college, travel, or a house. You can contribute a small amount to each goal or pick a couple to focus on first. Decide how much you need to save to reach those goals.

Sources:

  1. https://www.jackcanfield.com/about-jack-canfield/
  2. https://www.fidelity.com/viewpoints/retirement/retirement-guidelines

Stock Investing Basics

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“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.” John Bogle

Investing, especially in stocks, is about putting your money to work for you with the goal of growing it over time. And, the sooner you start investing the less you may need to save because your money gets to work that much sooner. The more you invest; the more those returns can add up.

Investing does involve risk. And the stock market particularly will experience volatility, meltdowns and melt ups. But there are ways and means to mitigate that risk. The key is to choose a strategy that incorporates a broad range of investments in stocks, bonds, and cash based on your risk tolerance and time horizon and never put all your money in one particular stock.

Intelligent investing is based on the relationship between price and value. One other important factor is time.  Assessing the stock price relative to its intrinsic value remains the most reliable way to invest for the long term. To protect yourself against market downturns, a long-term approach is essential.

Important steps to smart investing

All too often, people fail to think about how to start or just fail to start investing. To stay ahead of inflation, your money needs to earn more than a typical savings account pay. Research indicates that the best action a long-term investor can take is to start investing early in life, like in their early twenties—regardless of what the markets are doing.

Create an investment plan

“The man without a purpose is like a ship without a rudder.” Thomas Carlyle

Like a ship without a rudder, trying to manage your money and achieve your long-term goals are unlikely without a plan. You would not start a trip without planning and mapping out your route in advance. So,why would you save for retirement without first planning your path to achieving your short-, intermediate-, and long-term financial goals. You will need to:

  • Have an investment plan that is realistic and actionable.
  • Understand your plan, follow it, and adjust it when things change in your life.

Put your plan into action.

  • Keep your portfolio diversified with an asset allocation that’s right for your risk tolerance—and stick with it.
  • Don’t wait. If you invest now, you’ll start earning sooner.

Stay on track.

  • Do periodic checkups to keep your portfolio healthy.
  • Keep in mind that long-term goals are more important than short-term performance.

When you invest in a stock, you are buying ownership shares in a company—also known as equity shares. Your return on investment, or what you get back in relation to what you put in, depends on the success or failure of that company. If the company does well and makes money from the products or services it sells, you expect to benefit from that success. There are two main ways to make money with stocks:

  1. Dividends. Publicly owned companies can choose to distribute some of those earnings to shareholders by paying a dividend. Shareholders can either take the dividends in cash or reinvest them to purchase more shares in the company.
  2. Capital gains. When a stock price goes higher than what you paid to buy it, you can sell your shares at a profit. These profits are known as capital gains. In contrast, if you sell your stock for a lower price than you paid to buy it, you’ve incurred a capital loss.

Both dividends and capital gains depend on the returns generated by the company—dividends as a result of the company’s earnings and capital gains based on investor demand for the stock. 

The performance of a stock can be affected by what’s happening in the market, which can be affected by the economy as a whole or by changes in investor psychology. For example, if interest rates increase, and you think you can make more money with bonds than you can with stock, you might sell off stock and use that money to buy bonds.

If many investors feel the same way, the stock market as a whole is likely to drop in value, which in turn may affect the value of the investments you hold. Other factors, such as political uncertainty at home or abroad, energy or weather problems, or soaring corporate profits, also influence market performance.

Important Element of Investing

Stock prices will be low enough to attract investors again. If you and others begin to buy, stock prices tend to rise, offering the potential for making a profit. That expectation may breathe new life into the stock market as more people invest.

This cyclical pattern—specifically, the pattern of strength and weakness in the stock market and the majority of stocks that trade in the stock market—recurs continually, though the schedule isn’t predictable. Sometimes, the market moves from strength to weakness and back to strength in only a few months. Other times, this movement, which is known as a full market cycle, takes years.

At the same time that the stock market is experiencing ups and downs, the bond market is fluctuating as well. That’s why asset allocation, or including different types of investments in your portfolio, is such an important strategy: In many cases, the bond market is up when the stock market is down and vice versa.

Your goal as an investor is to be invested in several categories of investments at the same time, so that some of your money will be in the category that’s doing well at any given time.

Savers often think they can’t afford to lose any money by investing in the market. But they don’t realize that when they don’t make their money work for them, they are losing purchasing power. Inflation, for example, creeps up over the years and steals from your savings if you’re not earning enough to make up for it.

  1. https://www.oaktreecapital.com/docs/default-source/memos/nobody-knows-ii.pdf