A Plan Is Everything

By: Pete
Date posted: 07.13.2011 (12:31 am) | Write a Comment  (0 Comments)

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It amazes me every time I hear an investor not being able to disclose goals, objectives or a precise plan. If you cannot come up with specific financial objectives in both the medium and long term, how could you possibly hope to have the retirement, live the dreams, the trips, the house, etc

The Power Of Goal Setting

No, this is not a personal development website. I still think it’s important to understand the power of goal setting. Take any study about the subject and it always comes up to the same conclusion; those who determine clear goals tend to do massively better. I’m not talking about a 10-20% difference. I’m talking tens of times more. It may seem difficult to believe but I’m not the one saying this (even though I clearly believe it’s true). Goals are critical to success in almost any type of activity. If you agree to that, how could you possibly hope to do well without having your own financial goals.

Critical Elements Of Your Financial Goals

If you work with any type of financial adviser, chances are that you already have some goals and that they are revised at least annually. That is common practice. What should your goals include?

-Required Assets and Income: Any retirement income, amounts to be left for kids in the future, trips, kids education requirements, etc.
-Current Assets, Debts and Revenues: All of these are important in order to create a plan of action
-Tolerance for Risk: How much risk can you sustain? How would you react if you lost 10-20 or even more of your portfolio within a few days?
-Other Circumstances: Are you married, do you have family, etc

Build A Plan

Once you know how much you will need, what you have and how much you can save and invest, you have the necessary base to start your plan. At this point, it becomes mostly about math. If you have X assets, you need X in 10 20 or more years, how much return must be obtained. That will then give you a better idea of how realistic the plan is. How much risk would need to be taken to get there. If the plan is not realistic or the necessary risk is too high, it’s important to find out early in order to revise the plan. Many different things can be done to modify a plan and it is much easier to do so early on than in the late stages of an investor’s life.

A Vague Plan Is Better Than None At All

I know, I know, it’s difficult to predict how the market will react over the next few decades, how much you will be making per year, how your needs will adjust, etc. I get all of that. However, if you were a pilot flying from New York to London, would you:

A) Set up a flight plan, knowing very well that it will be adjusted depending on the weather, air traffic, delays, etc
B) Depending on how things go, improvise in order to get to London

Of course, the answer will always be the first one. I think everyone would agree that is the thing to do. So why do so many individuals not plan their retirement? I don’t get it personally…!

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