Strategies for Goal Setting
When you’re setting financial goals or life goals, there are myriad strategies you can employ. If you’d like to set goals for your investment portfolio, you should first identify why you want to increase your portfolio’s value. Maybe you want to build wealth or leave something to your children or grandchildren when you pass away. Whatever the reason, you should settle on a strategy that will inform your future investment decisions.
Define Your Goals
The initial step in this process is to define your goals. Some of the most common financial goals include but are not limited to:
- Education planning
- Emergency funding
- Family planning
- Life events
When building a strong investment portfolio, focus on how you want your portfolio to grow in the near and distant future. Many modern investors are setting financial goals that allow them to gain financial independence and retire early. The purpose of this strategy is to save and invest often and early.
Another popular goal is to add funds to emergency reserves, so you’re well-covered in case of any emergencies. A typical emergency fund consists of enough cash to cover 6-12 months of your living expenses. However, the optimal size of this fund can vary substantially. If you have a high net worth and a basic lifestyle, a few months of expenses might be enough. When setting goals, consider using the “SMART” approach, which requires the following:
- Specific – Have a clear and specific goal
- Measurable – Track your progress
- Achievable – Make sure the goal is within your reach
- Realistic – The goal should be attainable based on current circumstances
- Time-based – Set a completion timeline
Identify Your Strategy
There are four primary investment objectives, which include:
- Cash flow
- Lifestyle maintenance or improvement
Growth involves increasing assets through investing. For the best results, your assets must grow beyond the inflation rate if you want to improve your purchasing power in the long run. This strategy is best for long term investments.
Preservation involves maintaining your assets as you attempt to increase them for retirement. Wealth preservation is based on such factors as your net worth, your mindset, and the amount of time until you reach retirement.
A strong financial or goal setting plan depends on your cash flow. If you have more cash flow, it will be easier for you to save and invest in a manner that allows you to reach your goals easily and in a timely manner. You can improve cash flow by applying for a side job, increasing your income at your current job or investing in high-dividend stocks.
When considering lifestyle maintenance or improvement, you should identify what you want your financial situation to be in 5-30 years. Some individuals are content with what they currently have, while other people want to grow their portfolios and assets. Both strategies can be effective.
Create an Investing Workflow
The easiest way to reach your goals is by creating an investing workflow, which is a framework for the actions you want to take. If you don’t set specific goals, it will be more challenging for you to implement a workflow. Make sure that you consider short-term and long-term goals. For instance, a short-term goal could be to build an emergency fund. A long-term goal can involve planning for retirement. These goals should be documented as much as possible.
You’ll also need to check your progress to make sure that you’re taking the steps you need to eventually reach your goals. Even small amounts of progress can help you gain momentum and eventually take bigger strides towards your goal.
Consider adding a timeline to your goals as well. If you want to improve the worth of your investment portfolio by $200,000, you may be able to reach this goal in less than one year based on the strategies you’re using.
On the other hand, you may set a more long-term goal that involves investing in many different sectors and increasing your portfolio value by $10 million before you reach retirement. Whatever goals you have, they should all come with a timeline that you can reference as you attempt to make progress.
Even though setting investment goals can seem like a daunting prospect, the truth is that every financial goal can be difficult to achieve. However, the process becomes considerably easier by paying constant attention to your goals and keeping yourself accountable.