Become a better investor
Lesson in Course: Investing basics (beginner, 4min )
Goals are essential to successful investing. So how do we come up with them?
As we learned in the lesson about goal-based investing, we use investment goals to guide our decision-making. However, our lives hardly hold still, and so our plans will change as our financial situations change over time.
When creating goals for the first time, we don’t want to focus on laser precision, especially for longer-term goals, because there are too many unknown variables. It’s better to start with a reasonable ballpark target that we’ll revisit and adjust periodically to make them more accurate over time.
Start by writing down our goals.
It doesn’t matter if we put them on paper, a Google Doc, or use an app. We should break our goals into short, medium, and long-term, then prioritize them. The point is to have them available for review later to track our progress or change them.
Goals should be specific, measurable, actionable, realistic, and time-bound.
As part of creating our goals, we should form an action plan with steps to follow that will help us start executing these goals.
Our action plan should include the following:
Regularly review our goals!
As part of our plan of action, setting time to revisit our goals often gives us a sense of progress and helps us stay motivated, especially with long-term goals like retirement. To start, monthly reviews will help us get a sense of what's happening and if we need to make adjustments. Over time with more experience, we can stretch out these reviews to quarterly or yearly.
Let’s walk through a few examples of SMART investment goals for someone who might be around 30 years old.
A SMART goal might be to save at least $500,000 for retirement by 65 years old.
The action plan for this goal might look something like this:
Defining our investment goals is critical to our success. So let’s write them down using the SMART framework to use them later to guide our investment strategy, take action, and measure our progress over time!