Friday, March 6, 2009

Investment Pyramid - Hopes and Goals

Up to this point, we've been talking about the how of investing, from getting yourself ready financially to starting to build up some diverse investments to expanding into other investment opportunities. This is all important to know, but it doesn't touch on the broader question of why we invest. The short answer is, we invest to help us fulfill our hopes and dreams:

The longer answer goes like this: investing gives us more money, and more money (as well as alternative ways to get it) lead to more options. The main reason to invest is that by diverting some of your money from current consumption (that is, not spending all the money you earn), you can help to secure a more stable future.

The money you have, determines the possibilities that are available to you. If you want to retire early (or retire at all), travel the world, engage in philanthropic endeavours, or simply want the flexibility to shift your career without panicking about your income, investing can help you to achieve your goals. There are just a few things to consider as you work toward your goals:

1) Be realistic about your goals - If you're twenty now, making $40,000 a year and don't have any money invested yet, being a millionaire by the age of thirty just isn't realistic. Having $80,000 in investments by thirty is possible, though. Understand what is possible, what's impossible, and how to understand the difference between the two, and you will go far with your investments.

2) Be willing to sacrifice - All investments entail some short-term sacrifice. The money you are putting into stocks or mutual funds could be spent on entertainment now. Being able to say no to going out every night or spending money on a new television is necessary to be a successful investor.

3) Be confident - It's easy to find times when staying in your investments seems risky, or even stupid. As I write this, in March 2009, we are in one of the most volatile markets in decades. It's easy to find people panicking over market volatility, pulling their money out and keeping it in savings accounts or Treasuries.

These actions might make you feel safe in the short term, but it becomes nearly impossible to meet your long term goals with such low growth. Achieving your goals requires taking some (smart) risks, and being confident that investing for the long term will yield positive growth.

With these words of advice, I know you'll do well with your investments. Keep your goals in mind, work towards them every day, and you'll achieve them in the end. Good Luck!

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