Why setting an investment goal can help keep you on track

Clients often tell me they are investing to “grow their capital”. Which sounds reasonable right?

I would argue that everyone, whether they consciously acknowledge it or not, has a deeper reason for investing than just wanting to grow their capital. Sometimes we just need to be prompted or guided to explore our intentions further as this can involve taking a look at ourselves and our core values. Defining a goal can be critical though, especially when investors are facing heightened emotions brought on by challenging markets.

Connecting your investments to a fundamental goal helps you focus on how a short-term emotional decision could impact on your long-term outcomes. For example, if your goal is saving a certain amount for retirement or children’s education in 10 years’ time, then fluctuations in your investment capital today should not have any lasting impact on achieving your goal in 10 years. Having your defined goal in mind should ultimately help you stay disciplined and drown out the noise of short-term market movements. And regularly reviewing and reminding yourself of your goals helps keep you on track.

Conversely, if you don’t have a clear purpose or goal in mind for your investment portfolio, when faced with volatility in markets, it will be easier for self-doubt to creep in. If you’ve got no defined goal in mind you might wonder if it’s better to just have this money in the bank and accept lower long term returns. Staying invested then becomes a psychological battle that you’re more likely to lose. This can lead to making bad decisions at the worst possible times, and, at worst, selling out short of achieving your goal.