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For Investing Success, Know Your Goals


To invest wisely, it’s important to identify your goals for making money. People’s goals tend to fall into 4 categories: family, philanthropy, capital assets (what you want to buy), and lifestyle. Lifestyle tends to be one of the most important categories for people.
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In addition to setting goals for yourself, you need to know what you own. A person’s salary, assets, liquid assets, semi-liquid assets, and illiquid assets are all things to know of and be knowledgeable about. The next step is to line up your goals. Listing your goals and assessing the magnitude of each one is important. Additionally, you need to determine the character, inflation sensitivity, and duration of each goal. Looking at all of these things will help you to align an asset allocation strategy for each unique goal.

Understanding your allocation is one of the most key part of goals-driven investing. This is because it is the understanding of why the assets are allocated the way they are and why they are tied to each individual goal that helps investors fight their behavioral bias to sell when the market goes down and to buy at the top of the market.

During times of market stress, investors will be more likely to stick to their plans when they understand why their investments are aligned the way they are. The goal of many investors is to make 6% on their money; however this makes for an inefficient portfolio and a high tax payout to the US government. Having goals helps!

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