If I asked you what your objective is when it comes to investing, what would your answer be?
In my years as a financial advisor, I have found the answers I have gotten to this question to be far too broad to be meaningful. Whether it is “retirement,” “saving for my children’s college education,” or (the worst answer) “making money”. When it comes to anything in life, including investing, your success is in the details.
As I write this article, we are entering the summer season. For many, months of hard work at the gym have been put in to shed the “winter weight” and prepare their “beach body.” When I ask someone why they go to the gym, the answers “to work out” or “to get in shape” are reasonable answers, but are they good answers?
Traditionally, people who go to the gym have three main objectives: to lose weight, build muscle or tone muscle, or as some call it “get shredded!” You will end up in very different sections of the gym doing significantly different activities solely dependent on the objective you set out to accomplish. When it comes to losing weight, you will likely find yourself in the cardio section on the treadmill or stair-stepper getting your heart rate up and sweating. When it comes to building muscle, you will find yourself lifting heavy weights doing a smaller amount of reps. For those trying to tone muscle, you will likely be lifting lighter weights but doing a larger amount of reps. Without a clear objective, you will find yourself wandering around the gym doing things that will slow you down from achieving your objective or keeping you from accomplishing it all together.
Investing is no different. Like “working out” as an answer for going to the gym, “making money” is an answer that will have you wandering around the stock market vulnerable to all the risks it can bring with no clear end game. You must have a clear objective for what you are trying to accomplish when you invest. For example, the main objective for most people when they invest is retirement. You must visualize what that looks like for you. What age do you want to retire? How much will you need monthly to spend when you retire? What are the things you want to accomplish financially when you retire? The answers to these questions and others will create a very clear path and approach to achieving that objective.
For those who do not create clear objectives, their goals are ultimately at the mercy of whatever their investment strategy does vs. setting clear goals and objectives and, in turn, putting together a strategy to achieve that goal and objective clearly and quickly. Therefore, for most investors, they are doing it (whether they know it or not) under the guise of FOMO (Fear of Missing Out). FOMO is a dangerous way of investing. For many looking to become a millionaire off of the latest and greatest stock position, the potential rewards are huge, but the risk for most is even greater and the probability of receiving that reward is extremely small.
The parallels of investing and fitness do not end there. For decades many have sought the “fountain of youth” (the quick and easy way to be healthy and get in the best shape you can overnight). 8-minute abs, Atkins Diet, Buns of Steel, Taebo, Thighmaster, Shake Weight, Electric Muscle Stimulation (sitting on your couch while you get abs) are just a small sample of the “get in shape quick” fads that have faded into oblivion. The answer to getting in the best shape of your life and achieving your goals has always been and always will be this simple, objective-oriented exercise and diet. You will not achieve your financial goals overnight. No matter how many “friends” you have who are millionaires off of cryptocurrency, AOL, or Yahoo, you will never get rich overnight. Slow and steady wins the race and a clear objective is the single most important factor when it comes to achieving any investment goal.
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This article was written by Ronnie Thompson