Investing is a financial activity that people participate in, or avoid due to lack of understanding. Truthfully, those who stay away from investing are often the individuals who don’t take time to learn the process and how it impacts financial success.
Like many financial activities, investing starts with identifying your goals. Determining investment goals plays an important role in obtaining the finances you need to achieve what you want in life. Simply put, you have to make goals to meet goals and there are many components to take into account.
Factors to Consider
Start by calculating and evaluating your current financial status. Identify any limitations affecting your ability to invest. Limitations can include anything from outstanding debt to a shortage of available cash(1). Consider the time horizon necessary to reach your investment goals. Longer time horizons often decrease the volatility of investments while allowing for greater results from compounding returns. Here is an example of organizing goals by time horizon:
- Short term (less than 3 years): Take a vacation
- Midterm (3 to 10 years): Save for children’s education
- Long term (more than 10 years): Income stream for retirement
Of course, none of this will make a difference if you don’t know what you can afford to invest. You need to understand the amount of available money you can afford to invest.
Risk for Reward
Investing involves a level of self-discipline and honesty that many have difficulty realizing. When you’re ready to set your investment goals, it’s crucial you determine how comfortable you are with risk. Every investment has some level of risk involved, and there are times when investors receive higher rewards for greater market risks. This is not to say that you should push your risk tolerance to the limit just to get higher returns. Unfortunately, it’s not that easy. It takes time, effort, education, and strategy. Start with something simple that you understand. Dollar-cost averaging is helpful for smaller budgets. Once you conquer simple investments, research more complex options and you can begin to branch out.
Once you’ve set your investment goals, use them as the framework for your investing strategy, especially when it comes to picking the investments that are most suitable for you. Take the time to understand your options, research the market and take the risks when applicable. If you start learning and planning now, you’ll be reaching the high rewards before you know it.
Ready to establish your investment goals?
The Financial Fitness Group, a purveyor of comprehensive online financial education programs, has the many resources you need to be a financial success. We offer unbiased online, interactive instruction in personal finance, financial planning, investing and much more. Learn more about our online resources or schedule demo today.