"I want to make sure my investments meet my goals, but... how can I make sure they do?"

Like many people, you would like your savings to grow in order to provide income in the future. However, investment performance can be difficult or impossible to predict. It depends on many factors over which you may have no control, such as the economy and prevailing interest rates. Even so, you can control your own objectives, strategies and investment decisions. These factors can have a much greater effect on your rates of return than external factors. Unfortunately, many people invest with no specific or reasonable investment objectives. In effect, they are using no strategy at all.

Unplanned Investing

In the absence of specific targets for growth and risk, many people focus on obtaining high growth without considering their specific needs and risk tolerance. They may look for investments with the highest rates of return over the last year – a measure often featured in advertisements and media reports. This approach leads them to purchase investments at relatively high prices, without adequately considering the underlying quality or risk factors of their choices. The future prospects for these investments may not be as good as their recent performance would suggest; they may have ridden a wave of general market growth and be positioned for a significant decline in value. If this happens, recent purchasers are more likely to panic and make reactive, emotional decisions. They may end up “buying high and selling low” – a sure-fire way to achieve very poor investment performance.

Targeted Growth and Risk

Remember that your investments are a means to an end. They should be selected based on your specific goals and objectives which you can work out on your own or with a professional advisor. A Certified Financial Planner can help you determine a specific investment objective, such as an amount of income which you require in the future, while considering other sources such as pensions, government benefits and grants. Based on your existing assets and your ability to make regular contributions, he or she can estimate the rate of return necessary to reach that objective. The resulting “target rate of return” will be the starting point for your discussion of investment strategies and portfolio design. If the target rate of return requires a risk level that is too high for your comfort, you can adjust your objective, your savings level or seek other strategies to maximize your savings without incurring additional risk.

The Portfolio

Once you have established an appropriate target rate of return, your advisor can help you design a portfolio based on your specific objectives and risk tolerance. He or she can increase your likelihood of success by assessing investment choices based on your needs rather than short-term performance or market hype, and by using strategies to minimize income tax and investment costs. Your portfolio will be designed to provide the returns you actually need to accomplish your goals without potentially inappropriate levels of risk. While it may appear unusual to seek anything less than maximum growth, investors using this method tend to outperform other investors who follow the “unplanned” approach.