How to be Successful in Investing (II)

The second key for you to be a successful investor is to Set Exciting Goals, whether they are short-term, medium-term, or long-terms goals.

If you visit any PF blogger’s website and go through the posts, chances are you will see some personal goals. Some are as small as making a commitment when you starts a new day, something that you can think of before going to bed in the eveing; some are milestone types like increasing your net worth by $100,000 in 2006, a goal that can make you jump on your feet and go out celebrate when you achieve them. The whole purpose of setting goals isn’t the goals themselves, but what and how you do to achieve them.

In the second part of Kiplinger’s “The Five Keys to Investing Success,” the author suggests that your goals should be specific and challenging in order to keep you motived and focused down the stretch. Vague goals require little effort, and you may lose interests if they are so easy to grab. On the other hand, your goals also have to be realistic. Setting the bar too high will only discourage you if you never make to the destination. Therefore, in my opinion, a goal is not a flare in your mind, but an explicitly defined objective from careful assessments of your own situations.

Knowing where you are first, then see how far you can go.

For investing, your goals are closely associated with your time frame and risk tolerance level. Common sense tells us the longer the time horizon, the greater the risk we can afford to take. For short-term goals, the key is to preserve your principles while seeking reasonable returns. For long-term goals, however, being to conservative may cost you opportunities and result in inferior performance. To further illustrate, the article gives us some examples on short-, medium-, and long-term goals:

Short-Term Goals: You should not put your money into the stock market if you are going to need the cash in the next one to three years. In stead, CDs and money-market funds are better choices for the safety of your principles.

Medium-Term Goals: If your goal is to save for downpayment to buy a house in the next three to four years, you can put the money into longer-term CDs for higher returns, or take a little bit more risk by investing in less volatile, dividend paying mutual funds that provides extra income.

Long-Term Goals: Whether you are investing for your own retirement or your kids’ education, the long time horizon allows you to take a greater risk. In stead of focusing on playing it safe, developing an asset allocation that diversifies your portfolio into different sectors with a mix of individual stocks, bonds, and CDs, is critical to the long term health of portfolio and may eventually determine your investment success.

Click here to read the full article from Kiplinger’s Personal Finance.

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