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March 25th, 2015

GOAL SETTING: Map your investment strategy


A proper strategy is required to ensure that the goals you set are met. Whether the targets are to pay bills or to go on vacation, a carefully, well laid-out plan can assure success.   So when it comes to your finances a strategy map secures your goals.

You may have short-term goals you hope to achieve within a few years and long-term goals for the distant future. For example, you may be saving for the down payment on a home or perhaps you want to provide university education for your children. Maybe your goals are even longer term and you’re building a nest egg for retirement or planning to get married. Whether you are kick starting your investment or already a seasoned investor, setting goals are the foundation upon which long term wealth is built.In order to reach your goals, you need to determine their practicality and outline each goal’s investment time horizon. Time is important because the longer you have to achieve a goal, the more aggressive you can be in your investment choices. Conversely, when you have less time to achieve a goal, it is more prudent to consider lower risk investments.

That is why the mnemonic S.M.A.R.T is a useful way to ensure that the goals you select are motivating and more likely to be achieved. SMART goals are:

S:Specific – Proclaiming that you want to buy a car is not enough, you must do the necessary homework to find out the price of a new car versus a foreign used or locally used car and which makes better economic sense to purchase in line with your budget.

M: Measurable – Measurable goals can go a long way in refining what exactly it is you want. Decide how much you need to put aside every month to purchase your car and how long it will take to accumulate the full sum, so that you can trace your progress in reaching your target. Defining the physical manifestations of your goal or objective makes it clearer and easier to reach.

A: Attainable –You weigh the effort, time and other costs your goal will take against your other obligations and priorities. Is the car that you would like to have attainable, given your income and expenses?

R: Realistic – The goal has to be realistic and related to what’s happening in your real life. Can you afford a luxury sedan when your salary screamsfrugality?

T: Time Bound –every goal must have an accompanying timeline. Timelines can be categorised in short (0-1 year), medium (1-3 years), and long term (3 or more years) goal. The SMART methodology gives your goals form and shape with clear cut steps on how to make your aspirations a reality.

After establishing your goals, the next step is to determine what your current financial picture looks like. To see through the maze, the easiest way is to start a budget which is the bedrock upon which lies your investment strategy. It could mean simply allocating your income between savings and different categories of expenditure and debt repayment. Establishing and sticking to a budget leads to financial discipline and helps you to understand how much cash flow is available each month for investment and savings. It is a rule of thumb that establishing a regular monthly savings plan is recommended over one-time lump sum investments to reduce stress on cash flow.

With 2015 now in first gear, investors need to consider adjusting their investments in order to keep to the desired allocation between stocks, bonds and cash. While it is difficult for investors to forecast market moves, investors should spread their eggs among many baskets and remember that drastically altering their portfolio too often can bring negative results.

For any investor, the key to investing is ensuring that your portfolio is well diversified and one avenue is through a mutual fund, which typically involves building a diversified portfolio of stocks, bonds and cash or short term deposits.

Such asset class diversification allows investors to limit their risks by reducing the effect of a possible decline in the value of any asset class or security in the portfolio, so if one asset class or security underperforms the others can offset the impact. By having a well-diversified portfolio with a mix of these asset classes, you can participate in the gains of the best-performing assets while being cushioned from declines in others. Remember that the asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk. Mutual funds dig a bit deeper than simple bank savings because its earnings potential carves a route to achieving one’s goals.

An investor who wishes to focus on maximising growth should consider the UTC’s Growth and Income Fund and Universal Retirement Fund which are appropriate vehicles for investors eager to participate in the local economy and which offer potential value-adding investment opportunities. On the other hand, our TT$ or US$ Income Fund and offers capital preservation as well as current income.

Once you have determined what type of investor you are and what your ideal asset mix should be, you should re-visit your financial goals and investment strategy required to meet those goals. Developing SMART goals will channel your strategies in terms of time line and what fund is best in meeting a specific objective.

The path to goal setting and investing success takes time, serious study, disciplined effort and most importantly, patience.UTC portfolio managers can help investors enhance the performance of their investment portfolio and to identify ways for them to continue saving effectively and generating wealth.

By setting sharp, clearly defined investing goals, you can measure and take pride in the achievement of those goals, and you’ll see forward progress in what might previously have seemed a long, pointless grind.