Tuesday, May 29, 2012

Set SMART Goals for Investing



Set SMART Goals for Investing

Did you take some time during the Holidays to put together your New Year's resolutions? Most people go through the motions, but few write them down, and even fewer achieve them. Not surprisingly, the ones who write them down are the most likely to achieve them. In addition to the typical weight loss and exercise goals, your resolutions should include investment goals for the New Year. And simply saying earning "just a little more" is not a smart resolution.
Before we get too far, let's define what a goal is. My favorite definition - goal is a dream with a deadline. When we were kids we dreamed a lot, and somehow the adult world convinced us we need to "get realistic". We now don't dream often enough - dreams are a great. Disney World would not exist if Walt Disney did not dream. Michael Dell, Steve Jobs and Bill Gates might never become billionaires if they did not dream about a breakthrough personal computer. Henry Ford said it well "Whether you think you can, or you think you can't - you're right". Don't just dream about becoming wealthy, losing weight, or finding a better job - set a deadline. Without a deadline you are - just dreaming!
I propose setting a long-term goal for your wealth based on your dreams, and then some interim goals or milestones. Your resolution will be what you will achieve this year to reach your long-term goal, and will test if you're on track. For both the long-term and interim goals I suggest setting SMART Goals. SMART is an acronym for: Specific, Measurable, Achievable, make you Reach, with a Time-frame.
Most New Years resolutions like losing weight, exercising, earning more money, or taking a nice family vacation - fail on most of the SMART criteria. Take losing weight - it's not Specific and doesn't even say who will lose weight! Clearly, weight is easily Measurable but the resolution does not say how much, so it's easily Achievable by just taking your shoes off. Does it make you Reach? Without an amount you plan to lose it clearly does not. Finally, does it have a Time-frame? No, we can only assume it means by year-end 20__.
The first step to setting your financial goals is dreaming. Take Henry Ford's advice and open your mind to achieving financial independence, and decide what you want to accomplish? Would you like to have sufficient assets during retirement to spend $150,000 per year while your portfolio keeps growing 5% annually? Or would $100,000 be sufficient, and have your assets last until you are 112 years old? Once you do some dreaming, a financial calculator, a spreadsheet or a financial advisor can help you calculate what you need to accumulate and how much your assets need to grow each year.
I recently failed at achieving one of my long-term goals, which was to have income generating assets (IGA) of $5 million by my 55th birthday. I set that goal 30 years earlier and tracked my progress twice annually. Some years it looked like I would easily exceed that goal. In other years I realized it would be difficult after some setbacks. Was I devastated by that failure? I was disappointed, and yet realized I was far better off than most other Baby Boomers. I was far ahead of where I would have been had I not developed the discipline to invest and tracking of my IGA's and growth rate every six months.
I was able to forecast a shortfall several years before my deadline, so I took time in 2007 to decide what I want to do when I grow up. I realized I would need to start another business to allow me to grow my assets for a longer time. Taking a job wasn't even on the radar screen. I wanted a business that would allow me to live where I want (warmer and sunnier), take time to stay fit, smell the roses and travel (tax deductible), and most importantly help others to gain from my experience. I firmly believe Henry Ford was right, so I was able to create a new career with all the elements I wanted. It fits so well with my skills and hobbies that I don't feel like I'm working, even during the many 16 hour days. I reset my goals far higher with key milestones in the year 2025, 2035 (maybe I can put them to music and have a hit song), and my 112th birthday.
Others faced with a similar "failure" may decide to work longer, find a new job, or scale back their expenses. The good news regardless of how you solve a shortfall is that you dreamed, and you were smart. In the process you achieved, you learned, and realized that you can repeat the process over and over again.
Ronald M. Nawrocki (The Ronald), Fund Manager of B.I.Solutions Corp. a Phoenix based residential real estate fund. Brought us the 10 Commandments of Investing, author of Wealth DNA, and Investor Insights column in Hungary and Poland. Dedicating his time to help others Live the American Dream... regardless of where they live. http://www.TheRonald.us