Defining your investment goal is one of the most critical things to accomplish before you begin investing. An investment aim is a reasonable expectation of achieving a set of returns by investing a set amount of money over a set period of time. ‘Realistic expectations’ and ‘timeframe’ are the essential phrases here. In this piece, we’ll go over three key points/steps that will assist you in realizing your investment objectives. Please read this post all the way to the end because there is a bonus at the end:
3 Steps to Realizing Your Investment Objectives
1. Establish a realistic investment goal
You want to make a stock investment. Great! However, if you intend to invest Rs 50,000 in the stock market and make Rs 100,000 in six months, you should stop there. Stocks have historically outperformed savings, bonds, FDs, gold, and other investments, but hoping to double your money in six months is more comparable to gambling.
Set a realistic expectation while determining your investment goal. When compared to a 3.5 percent interest rate on savings, an average yearly return of 10-15 percent is remarkable. Furthermore, if you invest wisely, you may easily outperform the market and earn higher returns. Setting unrealistic goals, on the other hand, will compel you to take “unnecessary” risks in order to meet that goal. These risks might have a negative impact on your portfolio and possibly prevent you from achieving your goals.
That’s why it’s critical that you set a goal for your investment that is realistically ‘achievable.’
2. Recognize that making a living just by investing is difficult.
To be honest, few people can make a living only through investment. Why? Allow me to explain. In India, the average family’s annual income is ten lakhs rupees. The market’s average annual return, as we stated in the first point, is 10%. You’ll need to invest INR 1 crore to receive a return of 10 lakh in a year with a 10% return rate.
Even if you obtain a 20% annual return, you’ll still need an initial investment of Rs 50 lakhs to make a living.
To be honest, not many people have this much money to invest, especially if you are in your twenties and have only recently begun your work. That is why those who work full-time in the market pick ‘trading’ as a vocation in which they can leverage their profits. In a nutshell, if you have this enormous sum of money, excellent. You can begin your investing career as a full-time investor. If you don’t have a lot of money, on the other hand, you’ll need to find alternative ways to make money.
NOTE: Even the famed investor Warren Buffett started his career as a ‘fund manager.’ During the first half of his adventure, he wasn’t merely a full-time investor. Warren Buffett amassed a large sum of money by working as a fund manager before purchasing Berkshire Hathaway’s stock (not an individual investor).
3. Protect Your Investment from Losses
When it comes to investing, avoiding losses is just as crucial as making money. Furthermore, I believe that preventing loss is much more critical. Warren Buffett thinks the same way. Here’s a comment from him about the significance of avoiding loss.
How crucial is it to avoid losing money when investing?
Allow me to illustrate this with an example. Assume you have two investors, A and B. For the past ten years, Investor A has received a constant annual return of 15%. Investor B, on the other hand, receives an annual return of 18 percent for a period of ten years. However, in the middle of these ten years, he received a negative return of 15% in his eighth year. Who do you believe will have a higher return at the end of ten years? Is it better to be an investor A or B? Investor A is the correct answer.
Another key point to mention is that the loss is far more difficult to recover.
Consider the following scenario: you invested Rs 1,000 in stock and lost Rs 500. The incurred loss is 50% in this case. However, you must earn Rs 500 today by investing the remaining Rs 500 in order to recoup your initial investment. To make up for the 50% loss, a total return of 100 percent is required. In other words, even though you only lost 50% of your investment, you must make a 100% profit to break even. This is because recouping a loss is far more difficult than securing a profit. To sum up, avoid losing a significant amount of money by employing irrational investing strategies. It’s quite difficult to recoup the same amount of money.
The following are the major takeaways from this article that will assist you in realizing your investment objectives:
1. Set a reasonable investing goal for yourself. Otherwise, you’ll be forced to take unneeded risks.
2. Recognize that creating a living solely through investment is challenging.
3. Make sure you don’t lose money on your investment. Loss disrupts the compounding process, and recouping is considerably more difficult than avoiding a loss.
That is all there is to it. I hope you found this article helpful. If you have any questions or require assistance, please leave a comment below.