Investors who set concrete goals for milestones they want to achieve, whether it’s buying a boat or putting a child through college, may have more success.
Many investors set financial goals like trying to accumulate $1 million before retirement.
But a financial goal that’s all about the money may not be the best way to plan. Rather, some investors find that selecting tangible goals can actually help them reach their objectives. Forming a tangible goal takes the focus off the money and places it on the goal itself. This shift in focus can sometimes help investors make better decisions by becoming more vigilant about managing investments.
For instance, one investor’s dream may be to buy a luxury boat. Another may want to stop renting and buy her own home. Less concrete goals might include putting children through college or retiring by a certain age. Having tangible goals like these, which are more concrete than a simple monetary goal like reaching $1 million, may empower investors to focus more vigilantly on their ultimate objectives.
“Setting an investing goal is the first step in any client's financial journey,” said Keith Denerstein, director of guidance product management at TD Ameritrade. “It helps the client focus on the reason why he or she is investing and serves as an anchor for all subsequent decisions.”
In other words, it may pay for investors to daydream a little and enjoy some visions of what they want to achieve.
Somewhat surprisingly, most investors, even those with a high net worth, don’t mark down what they’d like to achieve. A recent study by CEB Towergroup found that 69% of North American high-net-worth investors surveyed didn’t have a formal financial plan. The study found that these investors were more concerned about increasing wealth than achieving lifestyle goals in retirement. The reasons are unclear. It could be that investors don’t know they need such a plan, or feel they don’t know where to start.
"Having concrete lifestyle goals, such as buying a house in five years, putting the children through college, or retiring at a certain age can help investors focus more closely on what they really want to achieve, and send them on the road toward actually reaching their life milestones,” Denerstein said.
Working with a professional advisor who provides access to solutions such as products, tools, research, and guidance, can help investors increase their confidence in meeting goals. The investor can then develop a plan that defines a strategy, timeline, and the solutions most likely to lead to reaching these objectives.
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