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How to Set Realistic Investing Goals

Setting goals, evaluating each one of them, and drafting a suitable strategy to achieve them are some of the primary things you can do to achieve financial success. How and where you invest your money depends mainly on your goals, so being clear is very important. There are a number of different goals that you can aim for in life. For most people, the primary goals are buying a home, building an adequate retirement fund, saving for their children’s higher education expenses, preparing for healthcare expenses, etc. However, you may also have other types of goals, such as buying electronics, traveling, opening a business, helping or contributing to the community, etc. Your goals are as distinct as your personality.

Moreover, they can also change with time. For instance, at the age of 30, you may dream of traveling around the world. However, at the age of 40, you may be more inclined towards building an emergency fund. At 50, you may want to leave behind a financial legacy for your loved ones in your absence.

No matter your goals, it is critical to be realistic when you set them. If you plan to save a million dollars in five months, you may not find success. However, if you break it down into smaller milestones, give yourself a reasonable time frame, and prepare step by step, you are more likely to reach your destination. Setting investment goals may seem like a simple task, but it can require some in-depth assessment of your needs and resources. If you need help with mapping out a financial plan that would allow you to reach your investing goals in a timely manner, reach out to a professional financial advisor who can advise you on the same.

If you are struggling to set the right goals, here is a guide that can help you understand how to set investment goals realistically.

Setting investment goals 

One of the biggest mistakes that most people commit is not having a clear idea or roadmap for their goals. The more clarity you have in terms of your wants, the more aware you are of how to save for them. Here are some things to keep in mind when setting goals:

1. Make them measurable:

Investment goals that can be measured are far more likely to be successful than others. For instance, instead of aiming to have a retirement fund that can generally offer you a comfortable lifestyle, try to fix an amount that you know will be able to provide you with a comfortable post-retirement life. This can be done by making a list of all your needs in retirement, like healthcare, food, electricity, leisure, travel, gas, etc. A retirement fund can vary for different people. So, keeping a vague idea of financial security may not offer you what you finally need in the future. But if you save according to your present salary and lifestyle needs and arrive at a figure after factoring in inflation, you can draw an investment strategy around it.

Most financial experts recommend saving up to 80% of your pre-retirement income for retirement. So, if your pre-retirement income is $100,000 per annum, you would need at least $80,000 per annum in retirement. For a retirement that lasts at least 20 years, you would need approximately $16,00,000 or more. This can be a ballpark figure for you to plan your savings, investments, and withdrawals and ensure that you save enough, use your money wisely, and do not outrun your savings.

2. Be specific:

Setting specific investment goals can help you choose the right investment instruments for each. Every goal requires a unique plan and strategy. And a clearly written financial goal would be easier to achieve. For instance, if you are saving for retirement, you would need to save in a 401k or an Individual Retirement Account (IRA).  Likewise, you can use a Health Savings Account (HSA) if you are saving for your healthcare expenses. If you are preparing for a child’s higher education expenses, you can opt for the 529 education savings account. If your goal is to diversify your investment portfolio, you can consider investing in stocks, bonds, mutual funds, exchange-traded funds, etc. Goals can be wide-ranging, and finding the right instruments for each need is essential. Therefore, be as specific as you can to avoid overlapping. A lot of parents invest in an IRA without proper planning and end up using it for their children’s higher education expenses as well as their own retirement. However, this can be a tricky thing to do. If your child uses up all the money in the IRA, you may be left without any or relatively fewer funds for your golden years. This can be problematic on several levels. On the other hand, if you see both needs as distinct and separate, you would be able to save for them individually and eliminate confusion and inadequacy at a later point in time. 

3. Allot a time frame:

Allotting time to your goals lets you adopt the best possible strategy to reach them and offers you clarity in more ways than one. Firstly, when you know the amount of time you have to reach your goal, you can plan your monthly savings and investments in tandem. For example, if you need to save $60,000 in one year, you would have to save $5,000 every month. If the goal can be achieved in two years, you could choose to invest $2,500 every month.

Secondly, allocating time allows you to be focused. When you know you have to save $60,000 in one year, you are far less likely to divert your attention from the goal. If you miss your savings rate one month, you will know that you have to make up for it the next month. It gets easier to map your progress and take remedial actions as and when you need to.

4. Make achievable goals:

Setting achievable investment goals ensures that you do not lose motivation. While there is no harm in raising the bar and striving for a better life than what you may have right now, it is also important to be rational. Financial growth is, more often than not, gradual. It is very rare for people to suddenly increase their net worth. In most cases, it can take years to build your bank balance and net worth. You may see people becoming overnight millionaires through lotteries and high-risk investments like cryptocurrencies, but the percentage of these cases is extremely low. Miracles can always happen, and you can hope for the best. However, keeping an achievable and logical mindset is crucial. When you set goals, make sure they are achievable. If not, you may feel dejected and might lose interest in the process. In some cases, it can also lead to desperation and induce you to fall for click-bait opportunities that may turn out to be scams.

What are the steps involved in setting investment goals?

When fixing goals for your future, the following things can help:

1. Decide whether you need growth or preservation:

Financial goals can differ for different people. A high net-worth individual may be interested in wealth preservation, whereas a young investor may be more inclined towards capital appreciation. In addition to this, some people may want to maintain their present standard of living, while others may want to improve their standard of living.

Your investment goals can depend on your age and life stage. If you are just starting out, you may want to earn more money and can, therefore, invest in options like stocks, equity mutual funds, exchange-traded funds, etc. However, if you are nearing retirement, you may need to preserve your wealth and can therefore consider options like bonds, certificates of deposits, money market funds, etc.

2. Differentiate short-term goals from long-term goals:

Short-term goals can include buying a car, traveling, renting a bigger apartment, buying a luxury item, etc. On the other hand, long-term goals can consist of retirement, saving for a home, saving for a child’s higher education needs, etc. Depending on the goals you set, you can choose investment options. For instance, a 401k is meant for long-term retirement needs. The account imposes a penalty if you withdraw before the age of 59.5. So, you can only use it for your post-retirement expenses after the age of 59.5. On the other hand, an IRA also has this limitation, but it does allow some qualified educational expenses as long as the account has been opened and active for at least five years. You also need to submit proof that your child is attending an eligible institution. 

3. Take advice from a financial professional:

Setting investment goals may not always be easy. Busy schedules, lack of financial knowledge, peer pressure, etc., can cloud your judgment. However, it is crucial to understand that getting a professional’s opinion can be helpful in most cases. If you are unable to make rational decisions with your goals, you can consult a professional financial advisor. A financial advisor can help you narrow down your needs and wants and fix goals that align with them. Financial advisors can also help you allot timelines to your goals, set realistic expectations, and choose the right investment options to be successful in the long run. In addition to this, you can also increase your financial acumen, read books written by successful investors, and subscribe to newsletters from financial advising firms to stay up to date with the latest options in the market. The more you know, the better you can plan.

4. Start small and take small steps in your financial planning:

You do not need to start planning multiple goals at once. You can target one goal at a time and slowly address numerous concerns at once. For instance, if your present goal is to build an emergency fund, you can first focus on saving up at least six to eight months of your income in a highly liquid investment or savings account. Once you have built your emergency fund, you can move on to other goals, like buying a house. If you plan to buy a home in the next ten years, you can then focus on saving up for the down payment.

Likewise, it is essential to take small steps. For instance, when saving for your house, make small targets like saving up to 20% of the value of the home in the first two years, 50% in the next four years, and so on. This will not create a lot of unnecessary burdens and will help you achieve your target steadily. Aiming to save the entire value of the house will be challenging and even impossible in many situations. So, make a wise choice.

5. Track your financial  goals:

One of the most important yet neglected steps in setting investment goals is monitoring them. A big part of setting realistic goals is to watch them from time to time and ensure they still reflect your needs. Tracking your goals helps you map your progress. It offers motivation and encouragement. Further, it also enables you to identify the problem areas so you can correct them when the need arises.

To conclude

Knowing how to set investment goals can be the foundation of a successful financial plan. Clear goals can lead to easy wins. They eliminate chaos, confusion, disappointments, and above all, failures. Moreover, they ensure that your hard-earned money is optimally used and prudently invested for your future needs.

In addition to this, it is also essential to make unbiased decisions and set goals that align with your broader needs in life. However, if you find any problems along the way, you can always consider hiring a financial advisor in your area. Use the free advisor match service to match with 1-3 vetted financial advisors that can help you with your unique financial needs and goals.

For additional information on the most suitable investing goals for your unique financial needs, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. In addition, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.

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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.