First Dream, Then Focus

Add comment March 7th, 2008

  Amy L. Barrett, MBA, CFA, CFP®, CDFA™ 

Everyone with a few dollars in their pocket has a long-term investment plan whether they realize it or not.  The owner of the cash might choose to spend the money.  However, this action is far from the best strategy for long-term fiscal health.  On the other hand, if the cash turns into an investment with more return potential, a more solid plan exists than the “spend it all” plan.  By holding an investment, you have an investment plan.  Nevertheless, you must ask: “Is this investment plan right for me?”  In other words, “How will the investment grow so that I may reach my long-term goal?”  You may have inadvertently chosen an investment, and thus an investment plan, that cannot get you to where you want to go.  Many people pay little attention.  Thus, their dysfunctional investment plan leads them astray.  

Too often investors collect assets over the course of their life without considering what role the investments have in their portfolio or retirement plan.  The better plan of action is to first identify your investing goals, then collect the assets that can most likely get you there.  An investor must set investment goals.   

The process involves a bit of dreaming and a lot of planning.  In the first goal-setting step, you must identify your ideal lifestyle, far off in the future.  Allow yourself the luxury of creating a fantasy life.  The second goal-setting step is assigning a dollar figure to the long-term lifestyle so that the goal is measurable.  Once long-term investment goals are set and measurable, the third goal-setting task is to design an investment strategy with the best possibility of getting you there.  

If you are fortunate enough to have already accumulated enough money to easily meet or exceed your life dreams, your goal is wealth preservation.  The investment strategy could contain mostly fixed income assets (bonds) which serve to protect wealth and a small amount of equities that increase in value over time.  Unfortunately, most people do not already have enough so the goal is to have investment growth.  After you have your goal, you must have an investment strategy which includes good planning and decision-making, acceptable investment return/risk, proper asset location, and correct investment execution.  Just as a well-designed automobile can run for years, a well-structured investment strategy can deliver the desired results over time.   

Amy L. Barrett MBA, CFA, CFP®, CDFA™ is a financial advisor, specializing in investment and divorce planning issues, with Savant Capital Management, Inc., Rockford, IL  815-227-0300