Determining Your Investment Goals

The first critical step in formulating an investment plan is understanding, then articulating, your investing goals. At a high level, your investing goals should be simple (though achieving them may not be). Start by asking yourself what you want to achieve financially.

Some Common Investment Goals

  • Growth: Growth is growth. Seems easy, right? You have something now; later, you have more. But how much investment growth is appropriate for your objectives and needs?

  • Cash flow: Whatever happens to the absolute value of your portfolio—whether it grows, shrinks or depletes—this goal is about aiming for the portfolio to survive long enough to generate whatever cash flow is needed.

  • Combination of growth and cash flow: A common goal. You would like your portfolio to kick off some degree of cash flow, and you want your portfolio to stretch to allow for that. As with the pure growth goal, it’s critical to understand what’s reasonable to expect. 

  • Capital preservation: This aspect of goal-based investing is often a source of great confusion and misperceptions are common. Capital preservation means preserving the nominal value of your assets. While some investors may have shorter term cash-flow needs for one-time large purposes, for investors with long time horizons, this goal is rarely appropriate as true capital preservation can mean watching your purchasing power diminish. 

Capital preservation and growth as a singular goal may sound terrific, but these are two conflicting goals inherently at odds. They both cannot be pursued at the same time—anyone telling you otherwise should be questioned.

Also, never underestimate the insidious impact of inflation, which can seriously erode purchasing power over time.