Building on your investment goals

Taking stock of your portfolio and goals is critical for long-term financial health. (MC)

As 2020 comes into full swing, you may have already set your financial goals for the year and for the decade, but you shouldn’t stop there. 

At the beginning of each year, it’s always wise to take stock of your investments, ensuring that your money is being spent in the right places, according to Jerrod Ferguson, vice president at Vance Wealth.

Whether you’re a seasoned investor or just starting out, learning to set investment goals is one of the most important things you can do, according to a number of financial analysts. 

By keeping track of where your money’s gone, where it’s at and where you want it to go, you can make sure you’re right on schedule to buy that house you’ve been dreaming about, retire comfortably or send your kid to college in a few years. 

When you sit down and begin to figure out exactly what those goals are, Erick Arndt, a financial adviser at Virtue Wealth, suggests you ask yourself the following question: What is the purpose of this investment?

Understanding whether you’re looking for a short-term or long-term investment will dictate how you design your investment portfolio, Arndt added.

Financial analyst Peggy Williams agreed, adding, “It’s crucial to know what you want before diving in headfirst. The most common mistake I see people making is simply not knowing and instead starting to invest in various markets.” 

For example, someone who wants to have that money in five years would want to select investments that don’t cost much in tax, according to Arndt. 

“Tax is something people lose sight of, and if you don’t take that into account, it can drain your portfolio,” he said, adding that the rule of thumb is to try not to spend money on tax for an investment you’re not yet utilizing. 

Similarly, Ferguson suggests those short-term investments be done in conservative assets.

“I would recommend investors identify any upcoming financial needs and make sure those monies are invested conservatively,” he said via email. “Anything that is more long-term (7 years plus) can be invested with more of a growth focus.” 

That way, if the market does have a future weakness, investors can spend from their conservative assets to allow the market to recover, instead of being forced to sell their growth assets at a bad time, Ferguson added.

“Be sure to make calculated decisions towards your goals from the start,” Williams added. “Get it right in the beginning and you’ll find that things tend to be a lot easier in the long run.”

That being said, Ardnt stressed that these things are important to discuss before even broaching the subjects of what companies to invest in, as investors can wind up spinning their wheels if done incorrectly. 

“Most jump right in and start buying stuff, which leads to the average investor underperforming the index that they’re investing in,” he said. “They can end up not getting closer to their goal because they don’t have the right things in mind. People struggle with this aspect because there’s no one to coach them through it.” 

This is why both Arndt and Williams suggest working with a financial analyst on these investments. 

“Not only does working with someone who knows their stuff help to keep you on the right path, but it also helps to hold you accountable,” Williams said. “Good investments are also reasonable, so having some to check you if you’re reaching too high can help prevent you from falling when that doesn’t pan out.” 

Arndt agreed, adding that by doing so, you may be setting yourself up for failure. Instead, be sure your goals match your actions. 

When looking at 2020 specifically, Arndt suggests looking at economic trends, such as the U.S.-China Trade Deal, Brexit and the coronavirus, to understand which are going to impact future investments. 

For instance, the trade deal is not only going to impact the U.S. and China, but it can also drive trade in other regions and benefit global trade as a whole, which can then impact other developing economies. 

“As people come from poverty into the middle class, this can make the economy really explode,” Arndt said, adding that those people will now have disposable incomes to purchase goods they may have not had the funds for otherwise. “Those disposable incomes are going to make the economy flourish even more and can be an (investment) opportunity.”

Many of these factors can be out of your control though, so Ferguson suggests remaining broadly diversified and focused on what you can control.

“There is always going to be something going on around the world that may impact short-term performance,” Ferguson said. “I think it is important for investors to focus on their long-term financial goals and understand that volatility is inevitable.” 

Regardless, both Arndt and Ferguson suggest taking advantage of any market dips that may occur. 

“It goes against what investors want to do emotionally, but this is how real wealth can be built over time,” Ferguson said. 

Moving forward, it’s key to look at investment portfolios with fresh eyes each year, avoiding basing those new investments off of last year’s returns, according to Arndt. And although it may be exciting when one fund is doing well, it’s imperative to look at your overall portfolio’s returns, Arndt added. 

“People tend to buy after a good year when those (funds) are high,” he said. “Those good returns typically come back to orbit, and then when comes back to its natural average, they end up riding it down.” ν

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