Thursday, January 11, 2007

Investing Goals

Write down why you invest in what you do. Or write down your Investin goals!

That's right, writing down your investing goals, or what you want out of your investments, or why your investing in what you are doing currently will help:

focuse your investing goals
organize your investments/investing goals
organize your focus and strategy towards your investing goals

They say this can work with anything. Rather your goal is investing more, getting healthy, or even just simple things as relaxing more.

But the idea is simple and easy. Write down why your wanting to invest in something new, or why you invested in that stock in the first place, and lastly what are you wanting to get out of that investment. So with these written down you can then stay more focused and on task with all your investments. But, you must have discipline as well to know if those investments are not reaching your goal or purpose that are written down then it's time to move on. For example if you say I would like to make a 45% return on this investment in a year. Well, and that year is up and you have not made that return well, then it's probably time to cut your loose.

Noting why you bought the fund--to get large-cap growth exposure and consistently above-average returns from a manager who has been in charge for several years, for example--will help to instill discipline and eliminate some of the emotion that so often gets in the way of smart investing.

For example you purchase iShares Dow Jones Select Dividend Index (DVY) to cover the costs of your son's education in 15 years. After much research you chose this EFT because the number look good and the dividend is pretty much unbeatable. After reflecting a good combination of returns and risk; its expenses were lower than the category average; and the fund ­didn't risk a lot on the technology stocks that so many other growth funds were feasting on. Those are all good reasons. So you ­shouldn't even consider selling the fund unless it falls short on these points.

To take the opposite case, maybe you bought DWS International (SCINX) because you wanted some international exposure and you were attracted by its long-tenured management and consistent performance. But since 1999, the fund's performance has been erratic, and it has also undergone a few management changes. Because the fund is no longer meeting your main reasons for buying it, selling would be a reasonable choice. Other legitimate reasons to sell would be that a fund has hiked its expense ratio or assets have gotten so bloated that performance starts to suffer. But remember reading all this, and action are two different things. It really comes down to you taking control, discipline, and writing down your investing goals.


Mike said...
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Mike said...

This is probably one of the best article. I have read in a long time.