The goal of successful investing is not to achieve immense returns quickly, but to build sustainable long-term wealth. Every once in a while, it’s useful to step back from the permanent chaos of political, economic and market events, and ask ourselves the fundamental questions: what am I investing for, and how will I know whether I’m succeeding or not? The answers will not be found in today’s media headlines and certainly not by attempting to predict tomorrow, but rather by your ability to establish goals and stick with a long-term plan.

Successful investing ultimately comes down to three essential steps. Following these steps in order is the key to a worry-free retirement.

Step 1: Set a Tangible Goal

Start your financial planning journey by asking yourself: What exactly am I investing for? Is it for retirement? A down payment for a home? My child’s education? Begin with the end in mind, and be specific.

If, for example, you’re close to retirement, with a mortgage, and an investment account that isn’t where you want it to be, your goal can’t be to “make as much money as possible before retiring”. This goal is not specific or measurable, there’s no knowing whether or not it is attainable or realistic, and there is no timeframe to gauge progress or motivate you.

Try to frame your goal using this format:
I am __ years old, and my primary financial goal is ____. In order to do this, I need to _____. I want to achieve this by the time I am __ years old.

Sticking with the retirement example, your goal might look something like this:
I am 55 years old, and my primary financial goal is to pay off my mortgage and save for retirement. In order to do this, I need to pay off $150k in mortgage debt and have $800k in my investment account. I want to achieve this goal by the time I am 63 years old.

Once you have a tangible goal that is specific, measurable, attainable, reasonable, and timely, the next step is to structure a plan.

Step 2: Create a Plan

Start by taking inventory of what you own and what you owe. Developing a clear picture of your assets and liabilities is a key first step in the planning process and will act as your starting point. We have a great tool we use with our clients called the Net Worth Calculator. If you don’t already have an accurate picture of your personal balance sheet, we highly encourage you to spend some time with this tool, filing it in as accurately as possible.

Quick note: any numbers you input into any of our calculators are confidential and won’t be shared with us; just make sure to press “print” at the end so you can save a copy for your own records!

Woman sitting at a desk using calculator calculating if her client is achieving successful investing

Once you have your start point (personal balance sheet) and end point (your goal) defined, you now have to come up with a cash flow plan that will get you from A to B. At this point, we’re still not concerned with investments; we’re more focused on saving and spending.

We have another great tool to help you with cash flow planning called the Pay Yourself First Calculator. This tool will help you get an accurate picture of what it will take to go from where you are now to where you want to be. Once again, don’t forget to click “print” at the end so you can save a copy for your records!

Now that you have a tangible goal, an accurate picture of what you own and owe, as well as an idea of what it will take for you to get from A to B, it is time to move on to the final step.

Step 3: Optimize Your Investment Portfolio

Only once you have clear goals established and a plan in place, should you start thinking about specific investments and portfolio allocation. Success in this department ultimately comes down to risk management, and if you aren’t careful, you could end up derailing your retirement goal. If you’re new to investing, getting a better understanding of yourself as an investor is a great place to start.

You can take our free Investor Profile Quiz, which will help you gauge your appetite for risk. Please note that risk questionnaires aren’t perfect, and there are many elements that go into optimizing an investment portfolio. This tool should just be used as a starting point.

At the end of the day, we highly recommend working with an advisor when making any decisions around capital allocation. Industry experience and knowledge around financial products make a world of difference, and having someone by your side every step of the way brings a certain peace of mind. If you would like to chat with an advisor to see how we can help you along your financial planning journey, we would be more than happy to set up a call with one of our experienced advisors.

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