Why Are Goals Important?
Studies indicate the importance of setting goals in achieving financial success. Setting clear goals provides several benefits for achieving financial success, including providing clarity about what you want, offering motivation, and creating a clear, specific plan to follow. When investing, setting goals helps take the first step towards something that may seem new or daunting for individuals.
What Makes a Good Investment Goal?
One of the most common rules recommended by experts for goal setting is to use the SMART method. SMART stands for the following:
- Specific: Defining a specific financial goal requires specifying how much you plan to save and the purpose for which you plan to save it.
- Measurable: Financial goals are often easy to measure. There is a specific dollar amount attached to them, and you can clearly see how close you are to achieving your goal.
- Achievable: While it’s fine to set high goals, achieving unattainable goals can diminish your motivation and pull resources away from other goals you can achieve.
- Relevant: Good investment goals should align with your overall objectives and values.
- Time-bound: Tying a deadline to your goal not only adds a sense of urgency but also helps you calculate how much money you need to save monthly or weekly to achieve the goal.
Questions to Ask When Setting Goals
When setting financial goals, there are some guiding questions you can ask yourself to help you formulate an investment plan and ensure you are on track. We spoke with Taylor Jesse, a Certified Financial Planner (CFP) and Financial Planning Manager at Taylor Hoffman Wealth Management. Jesse shared some questions that investors can ask themselves:
- What do I plan to do with this money?
- When do I expect to need this money?
- How much risk can I tolerate?
- Can this money be used for any other purpose?
- Do I understand what I’m investing in?
How to Set Realistic Investment Goals
It’s easy to discuss the importance of setting goals, but taking the necessary steps to set realistic financial goals is a completely different matter. Below, you will find steps to follow in order to properly set realistic investment goals.
Step 1: Define the Goal
The first step towards achieving your goals is to define exactly what you want to achieve. Common investment goals include retirement, funding a child’s education, or buying your dream home. Knowing your goal and making it SMART will help you create an investment plan to achieve it.
Step 2: Determine Your Investment Strategy
When determining how to invest your savings to achieve your defined goal, be sure to take the time horizon into account. According to the Financial Industry Regulatory Authority (FINRA), short-term goals – those that can be achieved in less than three years – are best suited for liquid investments such as cash, Treasury bonds, and money market accounts. For medium-term goals that range from three to ten years, you can balance your portfolio between high-quality fixed-income investments and stocks. For long-term goals exceeding ten years, you can take a more aggressive approach by investing in stocks, mutual funds, and Exchange-Traded Funds (ETFs).
Step 3: Start Small
According to a recent survey by Fidelity, 36% of Gen Z adults who have not traded during market volatility in the first quarter of 2021 feel comfortable starting to trade if they can do so with a small amount of money. According to Lannan, a simple adjustment in the investor’s approach can make goals seem more achievable. “For new investors, and for those who may be more risk-averse, it might be best to start small and get a better understanding of the process,” said Lannan.
Step
4: Seeking Support
You have never found the advice and support you need to achieve your financial goals. Many social media pages share detailed financial tips on investing and other topics. Most investment platforms provide educational resources on their websites to help investors get started. If you are a financially colored individual seeking financial advice or you are a financial professional of color, CHIP Professional offers free online and in-person services engaging Black and Latinx financial professionals, along with paid membership programs, networking opportunities, and more.
Measuring Your Progress
Your work isn’t done once you’ve set your financial goal and built your investment portfolio. It’s important to track your progress to ensure you’re on the right path. “The easiest way to track and measure progress towards goals is to use an app or online financial planning tool,” said Jessee. “With these tools, you can input your current assets, how much money you are saving, and the cash amount from financial goals you want to achieve (like college, retirement, buying a vacation home), and the tool will create some points or charts to show you if you are on track.”
As you measure your progress towards achieving your goal, you should be prepared to adjust your strategy if what you are doing isn’t working. In many cases, you may need to change your investment strategy or increase the amount you save each month.
Frequently Asked Questions (FAQs)
• How does investing work?
When you invest, you buy assets like stocks or bonds with the hope of earning a financial return. You can typically make a profit financially by withdrawing earnings or interest. You may also benefit from an increase in the value of your asset. For example, if you buy a stock for $5 and sell it at a higher price, you’ve made a profit on your investment.
• When is investing important?
Investing is a great way to make your money work for you – thanks to compound growth. For short-term goals, avoid putting your money at risk in investments and
Source: https://www.thebalancemoney.com/setting-investment-goals-for-financial-independence-4120968
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