Investing Articles by Gary Silverman

Investing Part 1 ~ Begin With Your Goals

“Money is not the most important thing in the world. Love is. Fortunately, I love money.” – Jackie Mason, comedian

Investing is about goals, not, like Jackie Mason loves, making money.

It may seem strange, but when we build an investment portfolio for a client our focus is not the highest returns (though we certainly aren’t trying for low ones) and yours shouldn’t be either. Rather, you should follow a strategy that will

·        give you a reasonable return,

·        do so at a reasonable risk, and

·        provide for your goals.

Don’t begin with a list of top stocks from a newsletter. Don’t start with some magazine’s “5 Hot Mutual Funds You Must Buy Now!”  Don’t begin with predictions about the direction of interest rates or commodity prices.

Begin with you.

Your needs. Your tax situation. Your tolerance to the ups and downs of the market.

One of the first questions I ask is, “Why are you investing the money?” The common answers: “to make it grow” or “to become rich” are not specific enough.  So I ask another way: “What will you spend your money on when it grows?” In order to achieve a financial objective, you must first define it.

As Yogi Berra said, “If you don't know where you are going, you will wind up somewhere else."

Most people don’t invest just for the joy of investing…they have a goal. Every investment you make, whether it is a deposit into a savings account, your paycheck deduction to a 401k, or purchasing a stock mutual fund, should relate to a goal. These are the important achievements of your life, so you should take the time to plan them carefully.

Planning begins with Life Planning: the goals of your life. This leads to Financial Planning: the financial demands needed to achieve those life goals. And finally Investment Planning: determining the investment needs of your financial, and therefore your life, goals.

Goals need to be carefully considered, mulled over, and studied. Doing so allows you to determine the maximum risk you should take, cash flows you can expect, the restrictions you want to make, and how this will help or aggravate your tax situation. Once you have your set of investment goals, make sure they reflect what you are really trying to do by tracing each one of them back to a life goal.

What should your investing goals look like? They should answer the following questions:

• Why are you investing the money?
• When do you need the money?
• How long do you need the money to last?
• Is there any “slop” in the goal? In other words, is this an exact amount on an exact date, or is there some give to it?
• How much risk (volatility) can you stand?
• And finally, are there any special tax or other constraints that need to be considered?