Developing an investment strategy includes:
1) Determining Your Investment Goals
2) Understanding Basic Investment Concepts
3) Constructing a Portfolio of Investments that Supports Your Investment Goals
In this article, we will discuss determining your investment goals before investing.
No doubt, your investment goal is to make as much money as possible. However, that is too abstract and you need to be more specific.
In fact, instead of figuring out how much money you would like, calculate the minimum amount of money that you will require at a certain age.
Here is a very general example; let’s assume that you are 35 years old and hope to retire at 55 years old. Let’s say you figure you are going to live to at least 80 years old. That means, you will need at least 25 years’ worth of money as living expenses after you stop working.
Assuming you intend to maintain your lifestyle, you calculate that you require $3000 a month or $36,000 a year. $36,000 x 25 years = $900,000. This does not include the cost of inflation, any out-of-the-ordinary expenses and this is just for you, not counting a partner or family.
So, you will technically require about $1,000,000 for your retirement. That’s right… one million dollars.
This means you have 25 years to accumulate $1,000,000, if not you cannot retire at 55. To find out how much you actually have to invest and contribute to continually grow your capital, use this free investment calculator here.
Whatever your goals are you should list them out and calculate how much you need to reach your goals. Calculating the amount of money you need for specific goals will help you figure how long it will take to grow your money. It will also show you how much money you would need to regularly add to your investment in order to meet your goals within a specific time frame.
Some time frames are more fluid, like your exact retirement age. However, if you need to pay for your children’s university education, you will know exactly how many years you need,
Some examples of investment goals include:
Growing a nest egg for retirement
Saving enough to get married
Buying a home
Paying for your children’s tertiary education