Your Road to Financial Independence Starts With Investment Goals

Your Road to Financial Independence Starts With Investment Goals

Financial independence means that you have enough assets that generate income or cash flow so you don’t have to work actively to support your lifestyle. How do you achieve financial independence? By building an investment portfolio. A good investor will set investment goals that are measurable, reasonable, and compatible with one’s long-term objectives.

Your investment goal must be measurable. Planning to save money every month is not a measurable goal. Planning to save $100 every month is a more definite target that you can actually work towards accomplishing.

Your investment goal must be reasonable. If you want to enjoy your first million by the age of 40, utilize financial tools to help you calculate how you can get there. If your current rate of savings is insufficient, either lower your expectations or invest more money.

Your investment goal must be compatible with your long-term objectives. You want to save money now because you want to be able to enjoy the fruits of your labor later. There is no point in working yourself to death just to get rich if you’ll end up spending that money on medical bills. Keep a happy balance between your short term needs and long term wants while enjoying life to the fullest.

Checklist for Setting Investment Goals

If you are married, it is important to sit down with your spouse and make sure that you have the same investment goals. If you are single, following a checklist can also be helpful in maintaining your focus.

What is your motivation?

For people who are thrifty and live below their means, saving money comes naturally. But for many investors, the compulsion to build wealth is driven by some kind of motivation. It is important that you identify what makes you want to achieve financial independence so you have a better idea how to design your portfolio.

What is your target passive income?

How much passive income do you need to create in order to live comfortably without withdrawing more than 4 percent of the principal value each year?

What is your risk tolerance?

Market fluctuations are normal but some people tend to respond with a knee-jerk reaction to these changes. The question is how much risk are you willing to take? Are you better off investing in “safer” asset classes that have compounding ability than riskier ones like stocks?

Will your moral values play a part in your portfolio?

If an opportunity arises to invest in an energy company, would that come into conflict with your pro-environment advocacy? Are you comfortable buying tobacco shares or owning a distillery? You need to decide if generating income is worth going against the ethics you hold dear.

Are you investing for yourself or your beneficiaries?

You can enjoy a higher withdrawal rate if you spend through your capital. But if you decide that you want to leave most of it to your heirs, you should be willing to take only a small cut of passive income and let the principal grow over time.

Are you capable of managing your own portfolio?

Hiring a financial adviser means additional cost but it can be an investment in itself as well. Unless you have a background in finances, asset management companies are in a better position to manage your mutual funds, taxes, and financial planning than an investment newbie like you.

Does your personality match your portfolio choices?

Would you rather invest in residential real estate and personally manage the upkeep or focus on stocks that do not require your hands-on involvement?

What is your timeline?

Even if a long-term investment opportunity seems very attractive, it is probably not wise to invest your money if you will need it back in three to five years. Your asset class should not only match your temperament, values, motivation, risk tolerance, and income goal but your timeline as well.

Need help identifying your investment goals? Talk to us today!

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