Here's part 2 of Kiplinger's five keys to investing success. Today, we'll be covering key #2, set exciting goals. Their thoughts:
Investment goal-setting is an intensely personal affair that will be guided by your own style and preferences. But if you set generalized goals, such as “financial security” or “a comfortable retirement,” you’re going to have trouble measuring your progress along the way. You may even struggle to maintain interest in the project. Vaguely defined investment goals can lead to halfhearted efforts to achieve them.
Better to set goals you can grab onto, goals that excite you. Instead of “financial security,” why not “$500,000 net worth by age 60?” Instead of “a comfortable retirement,” why not “an investment portfolio that will yield $2,000 a month to supplement my pension and social security?” Now those are real goals. You can put a price tag on each and use that as an incentive to keep up your investing discipline.
I think I'm on the same page with them, but their wording is throwing me off. Instead of "set exciting goals," I'd say "set meaningful and realistic goals." Why? Because "having $1 billion" is an exciting goal for many people -- but it's not going to happen for most. Instead, I'd suggest people develop meaningful goals and shoot for them. What's meaningful? Well, finding your retirement number and using that as a goal would be meaningful.
Also, the goal needs to be realistic. If you get your retirement number and there's no way you can reach it, what use is the goal? Instead, decide what's a realistic goal -- one that you can reach (which may mean you need to work longer, rely less on your retirement savings, etc.) Now this does not mean that you should keep from stretching yourself -- from cutting costs now, from saving now, etc. -- but a goal needs to be in the realm of reason to be worthwhile.
For instance, if I set $1 billion as my retirement number, that's not realistic no matter how much I try to increase my income, cut spending, etc. -- it's just not going to happen. But if I want to save $3 million for retirement, I'll still need to save, cut expenses, invest wisely and the like, so it'll still be a challenge to hit it, but it's certainly realistic as long as I'm disciplined.
So go ahead and set goals. I'm a big fan of them. However, don't worry about them being exciting, just make sure they are meaningful and realistic.
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