Investment funds has a set of goals that meet the requirements of investors and commensurate with the acceptable risk levels. The fund’s manager follows a specific policy and investment strategy to achieve these goals. That is why the securities that form the assets of these funds vary according to its goals and objectives. For example: when the achievement of a steady income is the goal of the fund’s investment, the fund’s manager sets the policies and investment strategies that will determine the securities to form the fund’s assets to achieve these goals.
Our relationship with money starts at an early age when we notice family members exchanging coins or bills for all sorts of stuff we like. Money’s power and authority grow when we get our first allowance or paid chore. These early experiences foster habits and beliefs that last throughout your life. Its challenges multiply as we approach adulthood and are encouraged to take loans to pay for college or buy a car.
Parental figures set the tone for investment goals early in life, teaching us to delay gratification until we can break the piggy bank, allowing those coins to buy video games, clothes or equipment. The intimate connection between investment and lifestyle grows more sophisticated as the years pass. The culmination of your working life is either a comfortable retirement or a struggle to make ends meet.
Consider stocks as tools for living, just like any other investment no more, no less. Stocks are among the many tools you use to accomplish something to achieve a goal. Yes, successfully investing in stocks is the goal that you’re probably shooting for.
You must consider stock investing as a means to an end. When people buy a computer, they don’t (or shouldn’t) think of buying a computer just to have a computer. People buy a computer because doing so helps them achieve a particular result, such as being more efficient in business, playing fun games, or having a nifty paperweight (tsk, tsk).
Know the difference between long-term, intermediate-term, and short-term goals, and then set some of each.
- Long-term goals refer to projects or financial goals that need funding five or more years from now.
- Intermediate-term goals refer to financial goals that need funding two to five years from now.
- Short-term goals need funding less than two years from now.
Stocks, in general, are best suited for long-term goals such as these:
- Achieving financial independence (think retirement funding)
- Paying for future college costs
- Paying for any long-term expenditure or project
Some categories of stock (such as conservative or large cap) may be suitable for intermediate-term financial goals. If, for example, you’ll retire four years from now, conservative stocks can be appropriate.
If you’re optimistic (or bullish) about the stock market and confident that stock prices will rise, go ahead and invest. However, if you’re negative about the market (you’re bearish, or you believe that stock prices will decline), you may want to wait until the economy starts to forge a clear path.
Some information to help you distinguish among these three actions:
Saving is the safe accumulation of funds for a future use. Savings don’t fluctuate and are generally free of financial risk. The emphasis is on safety and liquidity.
Investing is the act of putting your current funds into securities or tangible assets for the purpose of gaining future appreciation, income, or both. You need time, knowledge, and discipline to invest. The investment can fluctuate in price, but it has been chosen for long-term potential.
Speculating is the financial world’s equivalent of gambling. An investor who speculates is seeking quick profits gained from short-term price movements in a particular asset or investment. (In recent years, many folks have been trading stocks [buying and selling in the short term with frequency], which is in the realm of short-term speculating.)
Objectives of investment funds can be generally classified as the following:
- Invest to achieve income.
- Invest to maintain capital.
- Invest to achieve income and growth.
- Invest to achieve high growth.
- Invest to achieve growth.
Investment goals become moving targets for many individuals, with carefully laid-out plans running into roadblocks in the form of layoffs, unplanned pregnancies, health issues and the need to care for aging parents. Those unexpected challenges demand a dose of realism when choosing 401(k) allocations or deciding how to spend a year-end bonus, with the old axiom “saving for a rainy day” ignored by many folks until it’s too late.
Fortunately, it’s never too late to become an investor. You may be in your 40s before realizing that life is moving more quickly than expected, requiring contemplation about retirement. Fear can dominate your thinking if you wait this long to set investment goals, but that‘s OK if it adds a sense of urgency to wealth management. All investments start with the first dollar set aside for that purpose, whatever your age, income, or outlook. Of course, those investing for decades hold a major advantage, while their growing wealth allows them to enjoy the fruits of their saving habits.
Set Up an Investment Goals Workflow
Investment goals address three major themes regarding money and money management. First, they intersect with a life plan that engages our thought processes in unexpected ways. Second, they generate accountability, forcing us to review progress on a periodic basis, invoking discipline when needed to stay on track. Third, they generate motivation that impacts our non-financial selves in positive ways that can improve health and mental outlook.
Once established, the investment plan forces you to think about sacrifices that need to be made and budgets that need to be balanced, understanding that delay or failure will have a direct and immediate impact on your wealth and lifestyle. This process induces long-range thinking and planning, allowing you to abandon a hand-to-mouth approach and set a priority list for the things in life you truly value.
Use monthly or quarterly statements to review progress and recommit to your chosen life plan, making small adjustments rather than big changes when money flow improves or deteriorates. Review your annual returns periodically, and enjoy seeing your wealth grow without direct intervention or a holiday check from a relative. Learn to deal with losing periods in a mature manner, using the red ink to build patience while reexamining how your decision-making may have impacted those negative returns.