Why is it important to set investment goals?
As a regular human being, you can benefit from adding structure to your life. As an investor, adding structure to your investments – even more so. Once you have a goal, you have something to focus upon, which in turn helps you come up with a method for reaching said goal. This is the before mentioned ‘structure’ that helps you navigate through your life. Whether it’s your goal to become wealthy, become proficient in any skill or to simply live a good life. Once you set your gaze upon the goal, typically you start moving towards it.
With investing, as with life in general, it is quite important to set a goal early on. What follows are brief reasons why.
Without a goal you lack purpose
Most likely, each one of us has had a period in life where we wander aimlessly, without a clear purpose. At the very least, we’re likely to know of such a person. For some it may be a short period during adolescence. For others maybe further down the line during midlife. The length of such periods may vary for people, too. But, what correlates to them is that during this period you’re unlikely to accomplish something productive and worthwhile.
While investing can already be considered proactive, it is still possible for someone to invest without a clear-cut goal. And, without any actual purpose in your investments, you might even be better off just holding on to your money – simply because you could fall victim to poor decision-making by accident. Having a goal in place, on the other hand, tends to improve your attitude and decision-making.
You could save time (a lot)
Typically, investment goals can be put into three sub-categories – short-, mid- and long-term goals. So, a time requirement is present…at all times.
Where you could save some of that time is by deciding early on what goal you want to pursue. Because, short-term goals may require a different investment plan than mid-term or long-term goals. By not having a set goal at the start, it may become difficult to decide upon an investment strategy. Or worse – you could choose the strategy that ultimately is not fit for your needs.
That’s where you just lost time
An example would be not really having an investment goal, yet somehow investing all your free funds for a year in bonds and certificates of deposit (CD). At the age of 27. Without having a clear investment goal, doing this could either be the right or wrong strategy. For instance, if you decide later on that you wanted to invest for long-term profit and early retirement, having your funds in a low-yield asset would be a detriment to your ultimate goal.
Sure, there’s nothing wrong with investing money in low yield-high security assets, like bonds or CD’s. You get guaranteed, albeit low, returns without having to sweat market fluctuations.
But, at the age of 27? Either you must be sure you have a short-term investment goal, or you ought to invest in aggressive assets to maximize your returns. Meaning – you’re meant to earn as much interest as possible (without compromising investment security too much) and low-yield investment assets won’t help you accomplish that. It’s really in the name.
You also shouldn’t invest all your savings in the stock market when nearing retirement. Equity is too volatile to risk your full portfolio at that stage in your life. Having a clear investment goal can help you determine what investment strategy to choose to reach your goal more effectively. Short-term goals and even some mid-term goals require you to be prudent with your funds. Whereas long-term goals offer some leeway. Or, simply put – your risk tolerance is higher, so you can afford to invest in more volatile and higher-yield assets.
Always remember – time is money, but money is time, too. Especially in investing. Don’t waste it.
Having a goal makes you better
Setting a personal goal for yourself is the carrot on a stick that will take you through your journey. Knowing the reason for your trouble or, say – the prize that lies ahead, is extremely important and can make us focus and perform at a higher level. That becomes a benefit in itself, because being motivated can help improve your overall quality of life and helps overcome the occasional struggle if one arises.
The motivation that having a goal gives an individual cannot be underestimated in any case, but especially when dealing with long-term goals. You should note that there are possible long-term benefits, on top of reaching your goal, too – you could improve your personal qualities over time.
In investing, as in life, having no goal can keep you from your full potential or even worse – lead you down the wrong path, if only by accident.
Make sure to give some deliberation to your actions beforehand. That way you’re more likely to succeed in whatever you’re doing – whether it’s becoming a professional athlete, a musician, a doctor or simply an investor.
Figure out what to aim for. Even if it’s just a new phone or a holiday a year from now. Having this goal in place will help you decide upon your investment strategy, which in turn will lead to the preferable outcome. Invest in secure assets if you’re looking to guarantee the money you already have, plus some. Don’t be afraid. However, to aim for long-term wealth, if your time-frame, income and risk tolerance allows for it. Time, patience and reinvesting your interest really does wonders.