A successful investment strategy is constructed like a building. The goals provide the foundation, and the investment plan is the framework. As time goes on, the walls and floors fill in and the building grows. If your goals are vague, you risk ending up with an inadequate structure that doesn’t suit your foundation.
The Economic Policy Institute found that nearly half of all working families have no retirement savings at all. Overall, plan participation and balances have stagnated or declined in recent years. This predicament can be avoided by setting specific goals, and carefully crafting a realistic investment plan designed to meet them.
Begin by determining ultimately what you will use your investment money for. Set aside time, and do some soul searching to figure out what is truly most important to you. Be specific.
Is it for retirement?
Visualize what your retirement will look like.
Do you want to travel the world?
Tuck some away for your children’s education?
Create a cushion for medical expenses?
Buy a second home in Hawaii and invest in real estate?
Be as realistic as possible, decide on a number.
Next, analyze your current situation and your immediate future to identify any restrictions.
How many years can you save until you will need to use that money?
How much could you realistically invest now?
How much would you be willing and able to contribute for each of your remaining years?
Think about everything you want to account for. When those terms are set, you can proceed with crafting a plan.
With your ultimate goals in mind, and the outline of your business plan set, consult with a qualified investment advisor to discuss your unique situation. Consider how much risk you feel comfortable with, and how much liquidity you will need. Build a back-up plan to prepare for significant life changes that may affect your ability to save in the future.
Remember that investments are made with a long-term goal in mind. Don’t micromanage your funds. Resist the impulse to follow market ratings, or copy someone else’s strategy. Conversely, it is unwise to be completely hands-off. Revisit your investment portfolio annually to readjust your allocations and ensure that your earnings remain in line with your goals.
A solid investment portfolio that encompasses each of your defined goals and constraints should be able to endure market volatility and lifestyle changes. Without the help of a qualified, experienced financial advisor who understands your goals, your building is destined to crumble.