Don't be surprised and you'll meet your goals

By Gary Silverman, CFP®

Today I want to continue the conversation started last week looking at goals as they apply to investing.

One of my life planning goals is to have shelter that keeps my family safe and comfortable. I have a philosophy that is germane to this goal: If there’s an improvement needed that will help sell the house later, I want to do it now so I can enjoy it too. To that end I’d like to redo a bathroom sooner than later.

That life goal of shelter leads to the financial goal of having enough in resources to redo the bathroom. This goal has some slop in it. An “adequate” updating will cost around $5000. One that matches my wants would run around $10,000. The timing also has some leeway. While doing it right now is fine, waiting a few years is fine as well.

That then leads to my investment goal. I’m looking for an investment that is expected to grow to $5000 within the next 3-5 years as a minimum. I also know that I have a fairly high tolerance for risk, so if I save $6000 across the next five years, but end up losing money, as long as my balance is at least $5000 come remodel time, I’m fine with that.

Given that information I can then look into how much I already have saved, what my budget can handle as far as additions each month, and the type of investment(s) I might use. That then dovetails into investment planning, namely coming up with a strategy that:

1. will give me a reasonable return,
2. at a reasonable risk,
3. and provide for my goals.

So now we know that: 1) I have a reason I am saving and investing money, and 2) I need to keep that reason in mind in order to manage my investments successfully.

I’ll let you in on a little secret about how to meet these goals: You have to keep the markets from surprising you. Before I go on, we need to define surprise. The best way to do this is with a real-life example. From their highs toward the end of 2007, many of the stock indexes dropped over 50% during the Financial Crisis.  In March of 2009, the stock markets hit their bottom. More than half of people’s wealth that had been invested in equities was gone.

I was not surprised.

That doesn’t mean that I predicted the decline, sold all my clients’ stocks and hid the money in a bank account and missed the bear market. I did not know when the decline would happen, but I was not surprised.  I didn’t know just how bad this particular market was going to become, but again I was not surprised.

I was in the minority. Many people were shocked by how far the market could decline, including many of my fellow professionals. Over the next few weeks we’ll help you not be surprised by what the markets might throw at you and your goal.

This article was published in the Wichita Falls Times Record  News on January 29, 2017.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.