Why do we invest? Are we investing because everyone else is investing or are we working towards a bigger goal? For me, yes, I am investing for my kids, for their education and their future. However, if I am being honest, investing is like a game to me as well. It is my hobby, and the size of my portfolio is a scorecard. I enjoy the game, and I am good at it. That is why I continue playing the game.
However, your objective might be different from mine. A way for you to reach that goal of yours faster is first to state the goal clearly.
For example, if you want to be a millionaire, reaching a portfolio size of S$1 million will be a goal for you. Once you set that goal, you can then work it backwards. How many years do you have before you can reach that goal? If you are like me, in the mid-30s, you might still have 30 more years before retirement. Say you want to achieve that millionaire goal of yours before you retire, you would have about 30 years of investing journey to go.
And just by doing a simple calculation backwards, a yearly savings of S$10,000, invested at about 7% return a year would bring you to your million dollar goal by Year 30.
So once we know how to reach our financial goals, we can then plan how we want to invest to reach the goal. If all we need is a yearly return of 7% for the next 30 years, do we still want to take high-risk bets on companies with uncertain paths ahead? Or would you rather just invest in safe and stable companies that can more or less ensure you a 7% return over the next 30 years?
We do such goal settings to remind ourselves that we are investing for a reason, and we can create the portfolio to suit our goals. We do not have to join everyone else in the next craze of investment, rushing to buy bitcoin, the next technology company or gold just because everyone else is doing it.
Investing is a personal journey. Know why you are doing it and create your own financial path.
If you want to learn more about investing and to keep up to date on the latest financial and stock market news, you can sign up for a FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore.
Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.