Investment Targets: The Value of Having a Specific Investment Goal
by Alexander Green, Chairman, Investment U
Friday, November 2, 2007: Issue # 726
I was a pretty good golfer in high school. I lettered in the sport every year and alternated among the top two slots on the golf team my senior year. However, it wasn’t until I read Bob Toski’s “The Touch System for Better Golf” (now out of print, unfortunately) that my game really started to improve.
Toski made a number of helpful suggestions. But one idea about hitting off the tee struck me as radically different. Toski suggested that instead of just aiming down the middle and letting it rip, I should pick a specific spot in the fairway and hit to it as if it were a target.
The result? Instead of taking what I imagine must have looked like a “controlled wallop,” I began swinging more within myself, much easier. And I couldn’t argue with the results. I found the fairway a lot more often – and my score started coming down.
Toski’s advice would benefit most investors, as well. Instead of having a specific investment target or goal, many investors simply plan (either consciously or unconsciously) to earn as high a return on their investments as they can.
Investment Targets Can Secure Financial Independence
While I applaud anyone who takes the time to save and invest to secure his financial independence, this particular approach can generate all sorts of problems without an investment target in mind. Problems such as…
- becoming overconfident.
- investing too aggressively.
- winding up in all sorts of speculative investments like options, futures, penny stocks or movie partnerships.
The results are rarely salutary.
If you haven’t been saving enough – or your investments have been unsatisfactory – it’s unlikely that your salvation will come from ratcheting your risk tolerance way up.
Find Your Successful Investment Target
To manage your “serious” money successfully, you need to aim at a specific investment target.
First, decide how much you need to retire comfortably. Then you can easily quantify what you need to do to reach your investment goal by using any one of the many free online financial calculators available. For example, let’s say that your goal is to accumulate $1 million from scratch over the next 25 years. Just visit: http://www.easysurf.cc/vfpt2.htm and click on the link labeled Future Value of Savings Deposit.
- If your stock portfolio earned no more than 11% a year – the average return of the S&P 500 over the past 75 years – you’d have to save $634.46 a month.
- Investing this amount every month and letting it compound at 11% will give you $1 million in 25 years.
Of course, the beauty of this approach is you can change the inputs to fit your personal circumstances. If you have more time – or less – you can adjust for that. If you’re earning a higher return, or planning to accumulate a larger sum, you can adjust for that, as well.
The important point is you’re more likely to achieve your investment target or goal if it’s specific – and you know exactly what you need to do to achieve it.
It’s often been said that goals are dreams with deadlines. Knowing exactly what you want – and how you plan to get there – will go a long way toward helping you hit your target.
Just ask Bob Toski.
Good Investing,
- Another tool you can use to find your investment “target” is Personal ROI. It’s a simple figure you can calculate here on InvestmentU.com. Just plug in the amount of money you have now and how much you want to retire with. Then find your required rate of return. It’s easy, and could ensure you never run out of money. Learn more.
- Our free Momentum Stocks report will show you how to compound your principal even faster.
- Investment U’s Mission
- Target Retirement Funds: How to Put Your Investment Portfolio on Autopilot
- LEAPS vs. Stocks: An Investment Vehicle Throwdown
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