A Careful Plan To Help You Figure Out Your Investment Goals
When you read the term investment goals, you probably think of some old fogies with their stogies, as the commercial goes, planning a corporate take over. It does not have to mean that although it can. It refers to a goal based financial planning method that helps you hone your savings and retirement plans to maximize your returns.
How to Set Your Investment Goals
You might set your first investment goal in grade school when you open your first savings account. It could happen in high school when you join Future Business Leaders of America (FBLA) and sell stock in the company you form. Perhaps you want to purchase stock while still in college.
Start as Early as Possible Investing
Whenever you start, you need a plan. That plan needs to consider your age, income, and outlook. Many people have problems getting started with investing because they lack discipline for saving and investing when in their 20s and 30s. As they move into middle age, they need to make up for lost time, but they already have a family. Finally, they retire and must live on a rigorously strict budget to make their money last.
Start today with the tips in this article so that does not happen to you. No matter how much or how little you make, you can set aside some part of your income to invest. Some people luck out and land a job that includes a retirement package. This might be a 401(k) or in academia a 403(b) plan. Often, the employer contributes to the retirement account each pay period. If this is not the case, the Millennial or other younger career person probably does not begin investing. You should though.
Useful Tools
1. Stash
You can start with an app that helps you save and invest your change. Apps like Stash help you do this by rounding up your purchases and depositing the rounded portion into a savings account that you tie to an investment account.
Apps like Stash also let you deposit at regular intervals. You can set the app so that you deposit $5 out of each paycheck into your savings which the app pools with other savings to invest. You can begin investing with $1.
2. Acorns
Many people find this type of smartphone app an easy way to begin saving. Acorns and SoFi also fall into this category. Acorns partnered with PayPal so you can deposit from your PayPal account into your investment account. This comes in handy for those who work on a contract basis because it lets them contribute money to their savings and investment account just as if they were paid by paycheck.
Investment Goals: How Much to Save and Invest
Regardless of your income, you need to save and invest. You need to put at least 10 percent of your income into savings. You also need to place between three to five percent of your income in investments. This amount increases as you age and your income increases but starts with at least three percent of your income.
It may seem tough to force yourself to save about 13 to 15 percent of your income when you first start, but you need to do it. Here is why. The money you put in investments typically grows at a faster rate than what goes into a regular savings account. The reason you need both is that the savings account provides you a sure thing, while the investments quickly grow your assets. While you can quickly pull money out of savings, investment assets usually take a few days to liquefy. This means if you experience an emergency, you can use your savings to pay for the emergency need.
Setting Your Investment Goals
You can set investment goals to help you save. This can tie to your savings goals. For example, you might want to buy a house. You put money into your savings account to build enough for your down payment. You can use your investment fund as collateral for your mortgage loan.
Setting a goal can help you focus on savings and investment. Think about what you would like to achieve financially. Make a list and check it twice. It might start with vocational school or college and look something like this.
- 1. Vocational school/college tuition
- 2. Apartment and utility deposits
- 3. New car
- 4. House purchase
- 5. Starting a family – adoption or birth
- 6. College for your children
- 7. Retirement
By your 40s, you should be investing about seven to 10 percent of your income into your investment/retirement income. Your 40th birthday should include an accountability check that checks your investing progress. This entails reviewing the monthly or quarterly statements with your financial advisor. You may need to adjust your savings and investment plans, especially if your investments did not perform adequately.
SMART Goals
Look at your shortlist of goals again. You need to transform your simple list into a list of SMART goals. If you had a business class in college, you probably already know what that stands for, but if not, here:
Specific
Each goal needs to state precisely what you want to achieve.
Measurable
Set an amount to earn or save.
Achievable
Your goal should be practical and actionable.
Relevant
Each goal should be relevant to your life plan.
Time-based
Set a deadline for each goal and track progress.
Let’s extend those short definitions just a little. A specific goal means you write down that you want to own a sports car of a specific brand rather than just saying you want a car. A car you could purchase easily with about $10,000 in the bank, but a sports car of a specific make and model requires a larger down payment or you would need enough to buy it outright.
The measurable part refers to having an actual goal amount. You measure this in dollars or pesos or Bitcoin, whatever currency you save in.
Achievable refers to within reason. If you have a job that pays minimum wage and are only willing to work a 40 hour week, then setting a goal of $1 million for your investment portfolio is not achievable or reasonable. On the other hand, if you have a job that pays $36,000 and you work a side gig, you could consider that an achievable goal. So, whether the goal can be achieved is contextual.
Relevancy throws some people off. If you know that you do not want to have children and you have your tubes tied or get a vasectomy, then setting a goal for having a family would not be relevant. Only you will know what goals would be relevant to you. This means you cannot copy the list I wrote as an example. Maybe you live in on an island like Pitcairn. Buying a car would make little sense, but saving for a satellite for Internet and TV access might.
Time-based means setting a deadline. Let’s say you land the $36,000 job right out of college. You continue to live as frugally as when you were in college, so you dump about half of your earnings into savings and investments and live off the 18K. You could likely save your million in 10 to 20 years. You could set a goal of 20 years. So long as your salary remains static or you receive raises, you would experience no problems reaching that goal.
Don’t Forget Short-Term Goals!
Rather than only focusing on long-term goals, also include short-term and intermediate goals. For savings, short-term means funding vacations. For investments, it might refer to opening a 401(k) or a money market account or purchasing a certificate of deposit (CD).
Your bank and brokerage accounts should hold your investments and savings for your short and intermediate goals, while the retirement accounts of IRAs, SEP, and annuities should be devoted to the long-term goals.
While it may seem far off now, you should plan for your 70s, specifically the day you turn 70.5 years old. The US government requires you to begin drawing from your retirement accounts at the age of 70.5 years of age.
Investment Goals: Meet with a Financial Advisor
Your financial advisor can help you calculate retirement needs. You can use various metrics to estimate your retirement needs. You will need to discuss your goals with your financial advisor.
Depending on your goals, you will create a plan for saving and investment. Some advisors say you should save throughout life to replace 70 to 85 percent of their pre-retirement income. Others recommend 100 percent, so they can travel or pursue a hobby. Another option is the tiered approach of one times your pre-retirement income at age 30, three times your pre-retirement income at 40, seven times your pre-retirement income at 55 and ten times your pre-retirement income at 67. So, if you are on track to make $30,000 per year at age 30, you need to have that much in the bank by that age.
Since women live longer than men, they need to save more money. A woman will require 11.5 times her final income to live well during retirement, while a man only needs 10.6 times his final income. Women tend to save a smaller percentage of their salary – 7.5 percent – for investment. Men save 8.7 percent. Women also tend to earn lower salaries, so they need to save more at a higher percentage.
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Investment Goals: Changing Goals
Sometimes, you need to add to your investment goals to help you quickly reach a milestone. Let’s say you opened a credit card or two and it might have gotten out of hand. You then took out a third card to transfer the balances onto to try to fix the problem. Your cat got sick or you had to go to the dentist as an emergency and you spent a good portion of the money you needed to pay down the third card. Ah. Now, you need to add a new goal because you need to pay off your credit cards. You can buy a stock low and sell it high to quickly earn more money to pay for the credit card bills.
Your goals also decide your account methods. If you want a low-risk investment, you use a money market account or a CD account. If you do not mind high-risk investments, you can play the stock market and explore hedge funds. The methods you choose during your accumulation period decide the amount you have at various life phases. If something happens to you and you need to retire early, you need to have savings in place.
Keep Track of Trends And Changes
This is another reason you need to meet regularly with your financial advisor. Your goals change. The stock market’s volatility affects many portfolios and yours could be one of them. You need to meet with your advisor to keep abreast of changes and trends. You can re-invest to reduce losses.
Your advisor can also help you hone your plan. You might think that you have a good plan for when you someday retire, but you may not have factored in items like inflation or increased medical costs. Your financial advisor can help you plan a budget.
Perhaps you think you will live on the same budget, but your needs will change as you age. For example, at 50, you only need eight percent of your budget for health care, but by 85 it more than doubles and nearly triples. Your financial advisor can help you devise a budget that will actually work for retirement ag
Investment Goals: How Your Credit and Loans Affect Things
Of course, all this saving and investment adds up to nothing if you max out every credit card and take out huge loans. You will have to pay those off and that will use your savings and investments.
Here is another area that your financial advisor can help you with to create a plan. You can refinance a mortgage to get a better term at a lower interest rate. You can also squeeze in an extra payment by making half of your payment every two weeks. Over the long-term, this results in paying off the mortgage years sooner.
Credit actually eats up your savings and investments because you end up paying so much in interest. Ideally, you build a financial life that requires no credit cards. You do not need credit cards, as long as you save and budget.
If you decide to use your savings and investments for collateral, you put them in jeopardy. If you miss loan payments, you could lose your savings or investment account. The bank will want its money and you will lose your accounts.
Investment Goals: Unique Investment Formats
You may or may not have heard of Coinbase. It serves as a trading site for Bitcoin and other cryptocurrencies.
Cryptocurrencies
Cryptocurrency is a new method of investing. Rather than stocks, one trades crypto, typically referred to as a coin or token. While Bitcoin is the most famous, Ethereum comes a close second. Of course, there exist a few hundred other tokens as well. Many of them function like stocks. You purchase them at one price and the price rises or falls depending on the activities on the blockchain-related to the token.
The difference is that people commonly use tokens for utility reasons, too. In fact, a utility token is a type of cryptocurrency designed for spending like a currency rather than buying and holding or HODLing as they say of a stock like a coin. A utility coin might get created by a blockchain that hosts various e-commerce shops or that lets musicians list songs for sale. Some utility companies actually list utility coins so their customers can pay their bills with them. While this might sound odd, in some countries such as Venezuela, the national currency has failed and inflation has caused the currency to have little value. The populace turned to cryptocurrency as an option.
Other cryptocurrencies function like stocks. You purchase them with the intent of keeping them in your portfolio for years, so they increase in value. Bitcoin fluctuates in value often but has often risen to a value of $9,000 to $11,000 per Bitcoin. Some sites online let you accept Bitcoin as payment, so you do not have to buy it.
You can also trade one crypto coin for another, such as selling Bitcoin for Etherium or IOTA. This bears similarity to stock trading.
To Conclude,
In 2020, a multitude of ways exists to get started investing. You need to set goals first though to focus your investing plan. You will most quickly grow your savings and investments by creating a focused plan with SMART goals that result in realistic financial goals.