Five reasons why you must define your investment goals

We are all familiar with Lewis Carroll’s story “Alice in wonderland”.
One day Alice came to a fork in the road and saw a Cheshire cat in a tree.
“Which road do I take?” She asked

“Where do you want to go?” responded the Cheshire Cat.

“I don’t know,” Alice answered.

“Then,” said the cat, “it doesn’t matter.”

Have you ever drifted through life aimlessly, wondering why your life lacks purpose and significance? That is because you did not bother to write down your goals.

It is the same when it comes to investment. Being in the financial advisory industry for more than ten years, I have only come across ONE person who ever had a written investment goal for himself.

King Solomon once said, “Where there is no vision, the people perish”. While that sounds a big scary, the truth is that most people are not clear what they want, even though they think they do.

In one of my recent blog posts, I quoted billionaire Philip Ng saying “The ironic thing about possession is that you don’t possess the possessions, the possessions possess you”. That really set people thinking and that post attracted tens of thousands of views.

When you really start to set your goals and write them down, I promise your life will be different.

Setting goals will force you to clarify what you want

You see, most of the time, people invest, thinking that they want to make as much money as possible in the shortest time. In the earlier days of my career, I made the same mistake. When I presented my clients the profit which I have helped them generate, I have never felt the same excitement as I had expected.

Now think about it, if you are a business man or a busy professional, you have your house, a car and a healthy balance in your bank account, do you feel richer if you see 5% or 10% profit in your $200,000 investment account? Probably Not.

But you will definitely feel uncomfortable if you see that your account drops $10,000 last month.

When you are in the middle of a meeting, would you want your banker or broker to call you to make some urgent trades or top up the account due to margin call? That will definitely screw up your day.

When you are home after a tiring work day, would you want to check your investment statement, follow up the never ending news of the stock markets, or do you prefer to spend some time with your family, having a good meal, talk about anything other than money and work?

ding-xie-stock-market-crashIn real life, it is very hard for you to get excited by the cold numbers in the profit and loss statement, but it is easy for you to suffer emotionally for any bad investments.

So now you probably agree that the goal of investment is NOT just about making money.

Many people think that investment is risky, but ironically, people invest because they feel insecure. If you know that you have enough money to spend for the rest of your life, why make more money? You should enjoy your life, pursue your passion and help people. Like Brendon Burchard alway said, “Did I live? Did I love? Did I matter?”

The hard truth is that most people worry about the risk of running out of money. They do NOT feel safe by not investing. They just don’t know how.

Unfortunately, the typical financial institutions and regulators could not help much. The financial academia invented the risk profiling by scoring people’s risk preference into numbers. They then classified the investment products into aggressive, balanced or conservative and sell it to people who match the numbers. The assumption is that low volatility, low return products such as bonds are safer, high volatility, high return products such as stocks are risker.

That is why people lose money. Because your investment objectives and the products do not necessarily match!

For example, a typical businessman will be classified as an aggressive investor because naturally businessmen are risk takers. But in reality, if you have already exposed your life savings to great business risk, should you also risk your investments by setting a high targeted return? If you treat your own human capital as an investment product, isn’t it that the rate of investment return of yourself is much better than most of the investment instruments out there?

Think about it, write it down!

On the other hand, if you are near retirement, conventional wisdom tells you that you should scale down your investment and be more conservative. But think about it, if you are running a marathon, would you slow down when you are approaching the finishing line or make a final sprint? If you have not accumulated enough retirement savings, would you just give up and leave your future to the unknown or your want to take charge of your life.

Think about it and write it down!

By defining clearly investment objectives, you will leave the wonderland and on the right path.

In my next post, I will talk about “how setting investment goals can provide you with a filter for other distractions”. Stay tuned…

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