You have your goals when it comes to investing. But how do you ensure that you will reach them? While ultimately it is not 100% in your control, you can do a lot of things that will increase your odds of reaching your financial goals when investing. Luckily, the things you do have control over are easy to do and don’t take a lot of work.
5 Investing Steps To Reach Your Goals
#1. Have A Plan
If you want to drive somewhere you’ve never been before, how do you get there? You use a map or GPS. Using a map will guide you along the way so that you reach your destination. The same idea holds true for investing. You need a map. Or as most call it, a plan.
An investment plan lays out what your goals are and why they are important to you. It also tells you what you are investing in and why.
By having a plan, you are more likely to follow it when the market gets turbulent. And you know it will. Think about it. When you have a map and the road you are on looks wrong, what do you do?
You keep going because the map says so.
Your investment plan acts the same. You stick to your plan because that is how you are going to reach your financial goals.
#2. Assess Your Risk Tolerance
When you are investing, you cannot blindly invest in certain stocks or market sectors. In order to be successful, you need to understand your risk tolerance. This is just a fancy way of saying how risky you are with your money.
While you might be risky in terms of wanting to bungee jump, when it comes to your money, you might be more cautious. After all, you work hard for your money and you want to make sure you don’t take unnecessary risk with it.
That is where knowing your risk tolerance comes into play. By making sure you invest in assets that will provide a return you need along with a level of risk you can handle, you increase the odds of reaching your financial goals.
#3. Use Asset Allocation To Your Advantage
Now that you have a plan and know your risk tolerance, it is time to allocate your portfolio. This means you need to buy a combination of stocks and bonds that cover multiple capitalizations, nations and duration.
By getting your asset allocation right, you ensure that you are diversified and are not taking on too much risk in one sector or category of the stock market.
#4. Rebalance Annually
After your portfolio is complete, your work is not done. For the most part it is, but there is still some work left to do. Each year, you need to rebalance.
As the stock market moves, your asset allocation is going to change. You might have started out with a 50% stock and 50% bond portfolio, but now you have a 60% stock and 40% bond portfolio.
This doesn’t seem like a problem, but it is. The more stock allocation you have, the more risk you are taking and the more money you could lose. Remember, you set your asset allocation at 50/50 for a reason. It wasn’t a guess. It is what meets your needs.
Likewise, if the reverse was true and your portfolio grew to 60% bonds and 40% stocks, your portfolio may not grow as needed and thus you will never reach your financial goals.
Make sure you look at your asset allocation annually and when it varies by 5% or more, you need to take action.
#5. Stay The Course
Finally, you have to stay the course. In other words, you need to stay invested in the stock market. In both good and bad times, you have to stay invested. The reason is because you can’t time the market. You never know when the market will fall or when it will rise. History only tells us that over the long term, the market rises.
Staying invested during a falling market is hard. But you have to do it. Too many investors think they are smarter than the market. They end up losing a fortune because they are not smarter than the market. No one is.
Take a long term approach and you will see your money grow.
In order to reach your investing goals, you need to follow these 5 steps. If you can follow them, you will greatly increase your odds of reaching your financial goals.