Welcome to a short series entitled Investment Mistakes 101 where we aim to cover the most common mistakes we see investors making. We hope you find this series useful.
Mistake no. 1 – not having a goal for your investments
You’ve probably heard the phrase a thousand times ‘make your money work for you’. But what does that really mean? Well imagine for a moment you are a business owner and you have staff in your company. How would you feel if they sat around all day and did nothing? Your staff, instead of being an asset and helping the company to grow, are now an expense sucking money out of the business.
What would you do in this situation? Would you let them just carry on wasting your money or would you sit them down and ask them why they’re not working. Maybe reminding them on the aims of the company and their responsibility within it?
Its obvious that a sensible business owner would take the 2nd option. Why? Because the company will have a goal and a plan in place to achieve it. Likewise a successful business (or team) will also have individual job roles laid out and what their reward or salary is in return.
Well that’s how you should look upon your investments. Effectively, every investment should have a goal in mind that goes to work for you in line with its ‘job description’.
Some examples of investment goals could be ‘achieve an amount of X pounds by Y date’. This normally works well when saving for a life event or life stage – such as retirement planning or paying off your mortgage. These type of goals help you to identify how much you need to put away, how long you need to invest for and what rate of return is required.
Another goal could be ‘beat inflation by X%’. This works well when you don’t have a specific future event but want to make sure your money is growing in real terms.
Whatever the goal the important thing is that you have one. Having a goal sets the parameters and allows you to put some real structure in place for the investment.
Finally, if an investment doesn’t have a goal then how are you to know if it’s doing well or not? – a question that neatly leads us on to our next article in this series, the mistake of not monitoring your investment (coming soon).