InvestorQ : Are there any advantages in setting my trading and investment goals early?
rhea Babu made post

Are there any advantages in setting my trading and investment goals early?

tanvi Patel answered.
3 years ago

When you set your trading and investment goals early, you are able to direct your equity trading and investment towards a plan. You know the amount you are willing to lose in trading. Your risk will be circumscribed by that. You also know the risk that you can take in your investment strategy. Not to forget, time works in your favour. The moral of the story is to never start your trading activity without laying out your goals.

There is one more important advantage. You have the time to rethink and re-orient your investment strategy. For example you may have begun with the assumption that a focus on cyclical stocks will take you to your yearly targeted returns. Half way, you have the flexibility to shift focus to another sector, which looks more attractive.

Any equity investment is all about matching your assets and liabilities in terms of tenure and quantum. You can have long term liabilities funded by short term assets. You also cannot have short term liabilities funded by long term assets. Both mismatches can be dangerous to the value of your portfolio. You are able to better match your assets and liabilities. Equity is a long term asset class and you cannot rely on equities for your short term commitments. This enables you to pigeon-hole your investment products to your specific liabilities. This ensures that asset liability mismatch is avoided.

Have you heard of rule based plans? You are able to make the best of automated and rule-based plans. For example, your long term goal can be achieved through a systematic investment plan. It creates wealth over a longer time horizon as well as matches your monthly cash inflows. Thus it addresses returns and liquidity for you.

Goals bring a degree of realism to your equity activity; be it trading or investing. You are compelled to look at realistic data to achieve your goals. Your future retirement needs will be based on your expenditure patterns. Your expenditure patterns will be an extrapolation of your existing pattern. This forces you to use authentic data for your goals, making the entire activity more real.

Finally, you adopt a more scientific approach towards your savings / investment breakdown. In most cases, it is done randomly. Clearly laying out your goals helps you decide how much you can spend, how much you can save, how much you can trade and how much you can invest for the long term.