On a broad basis, there are a few main investment objectives to help you accomplish your goals. Understanding these objectives is important because certain investment strategies and products are appropriate for one type of goal but perhaps not for others. The following will provide an overview of the main investment objectives.
Goal: Capital Appreciation
Capital appreciation is an objective for achieving long-term growth. If saving for retirement is one of your objectives, the strategy to meet it would most likely be to invest in a qualified retirement plan where the investments work for many years.
This objective is not only limited to a qualified retirement plan; itcan also be about wealth building over many years. With a capital appreciation objective, you need to be confident that your portfolio is going to grow over time, and not concern yourself with day-to-day fluctuations. Watch for any changes with the companies you are investing in that could affect your long-term growth. And you should rebalance your portfolio if it strays from your asset allocation strategy.
Goal: Current Income
If your objective is to generate current income, you would most likely invest in stocks that pay a high dividend on a consistent basis, as well as highly rated bonds. People that pursue a current income stream may be retired and use the income for living expenses. Others may use this strategy to pay for certain needs, such as a college education, where they use the interest
to pay without touching the principal.
Goal: Capital Preservation
The objective is typically for those who want to make sure they don’t outlive their money. Security is extremely important even if that
means giving up return. To meet a capital preservation goal, the strategy would be to invest in bank certificates of deposit, U.S. Treasury
issues, savings accounts, and fixed income bonds, such as municipal bonds, other government bonds, and corporate bonds.
How to Set Your Own Goals
Most experts agree that goals- based investing is the best approach to reach investment goals. With this method, you set investment goals based on reaching specific life goals. You consider each goal individually to set a time horizon and a risk level.
To help you determine your comfort with risk and time horizon, ask yourself these questions:
What is your intent for investing this money?
When would you like to withdraw your money?
Do you want your money to achieve substantial capital growth by the time you withdraw it or are you more interested in maintaining the principal?
What is the maximum decrease in the value of your portfolio that you are comfortable with?
Setting Your Goals
Once you have a better understanding of why you want to invest and what you are hoping to achieve, you want to be very specific when developing your goals. Your investment objectives are the foundation of your investment plan, so don’t take them lightly.
There are various methods for setting goals, but one of the best to consider is the SMART goals format, which will help guide you through the process of setting your investment objectives. Following are the elements of the SMART format:
Specific — make each goal specific and clear
Measurable — make sure you define goals that can be measured
Achievable — make sure it is realistic
Relevant — make sure the goals relate to your life
Time-based — assign a timeframe so that you can track your progress and know when it is achieved
After you have defined your goals, you will then want to determine a timeframe for each goal. You are not going to achieve all of your goals at once, so break them down by goal categories such as short, medium, and long term. You will then want to set a specific number of months/years in which you want to achieve each goal.
Once that is complete, the final step is to determine a dollar figure for each goal. Some goals will be easier than others to define a dollar amount. For longer-term goals, such as retirement, education, or starting a business, spend the time to research what each of these could cost.
Once you have your goals clearly defined in some type of format, it will make it much easier to develop an investment plan, as well as a budget that includes your savings goals.
Estate Planning Tips for Baby Boomers
These tips can help baby boomers get back on track with estate planning.
1. Know what your kids expect — and what you plan to give them. Even boomers who’ve saved a lot may end up spending much of what they’ve accumulated, since retirements are likely to be long and healthcare costs expensive. Active boomers may be planning on spending much of their hard-earned money on themselves. They believe they’ve done a lot for their children already. That’s fine, but if this is your plan, you may want to let your children know.
2. Have a plan for the end of your life. While taking steps to live a healthy lifestyle is important to enjoying a great retirement, boomers shouldn’t assume they’ll be healthy forever. Sickness and disability can happen, and it will be easier for you and your family to deal with if you have a plan. Not only should you think about long term-care and how you’ll pay for it, you should also make sure you have end-of-life planning documents in place.
3. Make sure your estate plan is up-to-date. As you get older, your estate planning needs change. If your kids are independent
adults, providing for them is no longer as critical. You may have grandchildren who you want to receive part of your estate or new property that should be incorporated into your will. Or your family composition might have changed. Boomers need to sit down and review their estate plans to make sure they are properly conveying all their wishes.
4. Decide if, and how, you want to leave a legacy. If you count yourself among those for whom leaving a legacy is important, now is the time to start thinking seriously about how to turn those legacy dreams into reality. If your goals are ambitious — like starting a foundation or charity or endowing a scholarship — you should start
planning now. The more lofty your goals, the more important it is that you take clear, concrete steps to turn your dreams into reality — like meeting with the leaders of the organization you support and finding out how you can best help them. After all, you won’t be able to do this work after you are gone.
Not sure how to put these estate-planning tips into action? Please call if you’d like to discuss this topic in more detail.
Frankly Speaking
How to be like Buffett – by buying life insurance, to provide financial protection for your loved ones. Coverage for family breadwinners has become especially important in 2020, during a deadly and highly
contagious disease. From MoneyWise, Oct. 6
In 1903 Edward Hale became the United States Senate chaplain. At one point he was asked, “Do you pray for the senators, Dr. Hale?” He replied, “No, I look at the senators and I pray for the country.”
“The distrust of wit is the beginning of tyranny.” -Edward Abbey
What’s most important to you right now? Employment, the economy, election, or ‘Rona’? We seem to be climbing the proverbial wall of worry daily, and the only thing changing is the incline of that wall- upwards!
If you or anyone you know needs an element of perspective, please call or contact me!