How To Boost You Portfolio's Performance - Page 3 of 5

How To Boost You Portfolio’s Performance

a lot of people express a general desire to “invest for the future?” Financial planners say that a common refrain among investors is: “I want to have a comfortable retirement.”

What exactly does that mean? As you might suspect, it is highly subjective and individualized. For some people, having a “comfortable retirement” may mean making sure their 30-year mortgage is paid off. Others might view free-and-clear ownership of a home as low on the list of priorities. Also, what kind of money are we talking about to achieve “comfort,” or your preferred quality of life, in retirement? Will you require $2,500 or $5,000 monthly, $10,000 or perhaps some other amount? Determining these quality of life preferences are what leads us to the importance of setting the right kinds of goals — so-called “smart” goals.

Ready, Set, Goal!
So far, you’ve figured out why you’re investing, or why you want to invest: It’s for retirement, that new boat, or the 4,000-square-foot house you want to custom build. Whatever they are, your goals remind you that investing isn’t about building wealth simply for wealth’s sake. Investing should always begin as a goal-oriented process, helping you meet real-life needs and aspirations. As you can tell, goals are personal and values-based.

Still, you’ll miss the mark if you stop here. You’re far from done in the goal-setting department. Now that you have lumped your goals into short-, medium- and long-term time tables, you will want to really hone
in on several key points. Namely, you must establish specific, measurable, and realistic goals, also known as “smart” goals.

This goal is specific — in terms of the dollar amount required, the cost of the house, as well as the type of home desired. It’s measurable because you can readily figure out how much you would have to save each year (roughly $8,009 assuming a modest 4% annual return) to come up with the $25,000 down payment. It’s actionable because no amount of dreaming, wishing, or thinking alone will generate the money. You will have to do something. That could mean making automatic deductions from your paycheck, reducing frivolous spending, or working a second job to meet the goal. Depending on your income, expenses, debts, etc., this may be a stretch goal. But if you earn $50,000 a year or more, this goal is nevertheless realistic. (Even if you don’t earn $50,000 or more, this goal is realistic if you are prepared to make financial sacrifices. For instance, do you really need to eat out twice a week for dinner or get 150 premium cable channels in your home?) Finally, this goal can keep you on course because it has a definite time frame — three years.

“Smart” is an acronym that describes goals that are: specific, measurable, actionable, realistic, time-bound.

So How Much Will These Goals Cost?
Ultimately, you will also need to figure out how much money it will take to meet your personal/financial goals. For many short- and medium-term goals, you probably have a pretty good idea of the costs, so you can just