Chasing Goals vs. Chasing Returns

Some investors have a specific “number” they want to reach in savings before they retire. Others have no idea how much they’ll need in retirement, they just know they need to save as much as possible. Still others buy shares in a particular investment with a specific return goal in mind.

While all of these approaches may be valid depending on the investor’s individual circumstances, a good place for anyone to start is distinguishing between what you want and what you need. Sometimes when we chase returns, we’re really looking to beat the indexes or other similar types of investments. It’s easy to forget that investing isn’t like keeping up with the Joneses, it’s about growing assets for a specific goal. And remember, your goals are likely to be different from the Joneses.

As your financial advisor, we can work with you to outline the type of lifestyle you want to have in retirement, with a rough idea of how much that will cost. That annual amount is often referred to as your retirement income. Whatever that annual goal is, you can subtract from it the amount you expect to receive from Social Security and an employer pension, if you have one. The amount that is left is what you’ll need to provide from your investment portfolio or some other source of income.

To help determine how to invest your money to reach that annual amount, you should consider factors such as how long you have to invest until you retire, the amount you currently have to invest, how much of your assets you should set aside in a separate, more liquid account for emergency funds, how much you can contribute to your investments each month from your income, your current and future income tax brackets and the amount of risk you’re willing to take with your investments. Please remember that investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

This analysis is used to determine and recommend investments or an allocation mix to help you pursue the returns necessary to reach your annual retirement income goal. It’s not a matter of investing in a particular stock for a specific rate of return, it’s a matter of matching the investment to your personal factors and financial needs.

Once you’ve established a long-term strategy to help you work toward your financial goals, it’s important to monitor your financial strategy regularly to help ensure it stays on track.

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