Planning for your goals when you invest means giving yourself the best chance of success.
Without a plan, it’s easy to get distracted by daily headlines. You can end up reacting to the news, timing the market, chasing returns and missing out on long-term gains.
With a plan, you know where you’re heading because you have a map. Along the way, you may not know exactly what each day will bring or have control of everything but a plan will keep you focused on your goals.
The best way to define your goals is to make them time and dollar specific. This means we assign them a timeframe and the dollar figure we’re going for. If you have multiple goals (for example, paying for both retirement and your child’s education expenses), each needs to be clearly defined and accounted for.
This step is often skipped as investors tend to quickly jump to solutions. However, defining your goals delivers clarity and a sense of ownership over your investment plan. We work with you to help you get this right. People don’t come to us with clearly defined financial goals, so don’t feel pressured into feeling like you need that clarity before seeking financial advice. Client goals are born in our first meeting.
With clarity around your goals, it’s possible to move on to establishing a plan to achieve them. This involves working out the initial and ongoing regular dollar amount to invest and a suitable investment strategy. These will depend on the specifications of your goals and are prepared by your financial planner. Your planner will explain the reasons behind the recommendations as well as suitable products that will fit your plan.
Because most objectives are long-term, your investment plan should be designed to endure through changing market environments, and should be flexible enough to adjust for unexpected events along the way.
A sound investment plan can help you to practice healthy investor behaviour, because it demonstrates the purpose and value of asset allocation, diversification, and rebalancing. It also helps you to stay focused on your intended contribution and spending rates.
Without a plan, investors often build their portfolios from the bottom up, focusing on each investment holding rather than on how the portfolio as a whole is serving your objectives.
Another way to characterise this process is “fund collecting”: Investors can be drawn into evaluating a particular fund or other type of investment and, if it seems attractive, they buy it, often without thinking about how or where it may fit within the overall asset allocation.
While paying close attention to each investment may seem logical, this process can lead to a collection of holdings that does not serve your ultimate needs. As a result, your portfolio may wind up being under diversified (all your eggs in one basket) or you may end up holding a whole lot of expensive double ups (over diversification).
With no plan to focus on, investors are led into such situations by common, avoidable mistakes such as performance chasing, market timing, or reacting to market “noise.” They are moved to action by the performance of the broader equity market, increasing their equities exposure during bull markets and reducing it during bear markets. Such “buy high, sell low” behaviour has been well documented and caused by our hard-wired emotional response to fear, rather than a rational one.
Once the plan is in place, it’s revisited on a regular basis so you can track your progress.
The future will not go exactly according to plan and that’s ok. It’s not about getting things exactly right about the future because we can’t. Your investment plan will, at some point, inevitably become an outdated map. The landscape will change. That’s life.
Our ongoing planning process will ensure we address things as they come up. We’ll communicate with you on a regular basis, sometimes more frequently than other times.
Having us on your side means we won’t continue to defend the outdated map but instead will be your guide in the ever-changing landscape. We’re here to make sure you’re heading the right direction. We’ve got you.
Every now and then you will have a tendency to listen to ideas that can hurt you financially. We believe investors should employ their time and effort up front, on the plan, rather than in ongoing evaluation of each new idea that hits the headlines. This simple step can pay off tremendously in helping you stay on the path toward your financial goals.
So, whether it’s a new car, education expenses or a comfortable retirement, if you keep your eyes on the end goal, you’ll stand more chance of reaching your destination and achieving investment success.
The most important step is to begin.
How does your investment goal strategy look?
If you want a fresh look at how to reach your investment goals, book an appointment with one of our experienced planners, contact us on 02 9328 0876.
Article by Sydney Financial Planning
General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.