You might have heard about the idea of “values investing” recently. It’s the idea of selecting investments based on your feelings toward the environment, sustainability, or the like. Well, this article is not about that. It’s about something bigger.
If you’ve met with a financial advisor or read anything recently about financial planning (and even if you haven’t ) you probably heard the words “goals” used a lot. How it’s important to have a financial plan and to have goals. It’s all the rage. You see, the idea is not to just pick investments willy-nilly, it’s to start with identifying what you’re investing towards. Instead of investing in the hot stock of the moment, or whatever “meme stock” they’re talking about on Twitter, you start with your specific goals. (If you don’t know what a “meme stock” is, consider yourself lucky.). In other words, what are you trying to fund and when is that event going to happen.
It’s important stuff, really. Problem is sometimes your goals can be hard to identify. What if you were asked by a financial advisor, on the spot, to identify your life goals and assign a cash spending target to each one. Could you do that on the fly? Try it now. I’ll give you a few minutes. Go.
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Okay. How’d you do? It’s not a super easy thing to do, especially on the spot. Truth is no one really knows all of their life goals, and besides, probably change as you grow anyway. So how could you know? But what if instead of trying to figure out your life goals (that’s too hard), I asked you something like this:
What is important about money to you? Or, put another way, if you had enough money to provide for your needs, how would you live your life? What would you do?
You may say – start a family, spend more time with my kids, travel more, start a business. These are your values. What’s important to you.
Another question may be: if you were on your death bed today, what would you regret not doing?
It would probably be easier for you to answer these questions than if I asked you to list your goals. But, now that we have a list of your most important values, we can derive a list of goals. We can compare your current financial situation with your ideal life, and derive an set of steps to put into action to help you realize your values.
Why is all this important?
Well, for starters probably the most important thing it gives you is focus. You know what’s important and what you can ignore. Once you know what you need to achieve your goals, you can ignore everything else. The talking head on TV pushing the hot stock of the today? It isn’t part of your plan, so ignore it.
Developing a plan helps you set your investment strategy and figure out what investments to choose.
You can set up short term and long term investments for short term and long term goals.
You don’t have to worry about whether your beating the market right now. Only if your investments are meeting your personal objectives.
In that way, you benchmark isn’t the S&P 500, it’s the target that will best help you live your life.