Top 5 for goal based investment

The new year is a time when we reassess our goals in an effort to align our actions to get us to where we want to go. The same holds true for investing. There has been much talk over the last several years regarding modern portfolio theory (MPT) and the use of exchange traded funds (ETF), but little discussion about why these often don’t perform as well as you would like.

Let’s take a look at 5 reasons why your goals should be front and centre when it comes to investing.

  1. Risk Management

Sure, everyone wants to make as much money as they can – but with that comes risk. If you are saving to purchase your first home in the next 1-2 years, you really don’t want to risk the loss of any capital. If your retirement is 35 years away, then you can take on more risk with those funds. If you know that you are saving money for no other purpose but to build intergenerational wealth, then you may even be comfortable taking on some speculative risk. Match your asset allocation accordingly. How much risk you can manage is a function of not only who you are, but also what goals you are saving for.

  1. Measure Progress

A goal, most often, will have a timeline attached to it. You may need $60,000 for a down payment and closing costs of your first home. Understanding the target amount has a deadline, you can make better decisions as to how much and where to place your savings dollars.

  1. Understanding Financial Behaviour

Behavioural finance is a growing field because we know the impact emotions have on our investing decisions. When you understand your goal and the related risk you can take on to meet that goal, you are better prepared to intellectually manage your asset allocation. Self reasoning can be a double edged sword, so you want to ensure that before you hit buy or sell, that the assets and their expected performance actually align with your goals. Reviewing the markets on a regular basis won’t help you reach your goals, but it will create a level of anxiety that isn’t beneficial.

  1. Adaptability and Flexibility

You may not have been able to set aside enough savings to meet your home purchase desires in the time frame outlined, but by reviewing your saving pattern, you will have a better idea on how to adjust your timeframe or home purchase value in a realistic fashion. Likewise, maybe skipping the drive through on the way home is your best option to meet your savings goal. Understanding your goals makes it easier to make spending decisions.

  1. Measure What is Truly Important

At the end of the day, it doesn’t really matter what your rate of return was if you can’t meet your goals. It doesn’t matter if there is excess if you have nothing of worth to enjoy it on. Clients typically want to know if they can afford their bucket list trip or have enough to help their children with their education. These are the things that really matter.

Goals-based investing is an integral part of financial planning. It encourages you to assess your current financial situation, determine your future needs, and develop a plan to achieve those needs. This process often involves prioritizing your spending, saving, and making strategic financial decisions in alignment with your goals. In the end, it really is all about peace of mind knowing that you are heading in the direction of your dreams.

For more sound financial tips from Dr. Arnal, visit the Financial | Wealth section of the site.  

Advisory

As your Chief Financial Officer, I am here to help you make smart financial decisions that align with your business growth, personal wealth creation strategy and long term interests. Helping you understand your money and assisting you in making smart decisions about your debt repayment, insurance protection, tax management and wealth creation, are just some of ways that I work as your fiduciary.

Have more questions than answers? Educating you is just one piece of being your personal CFO that we excel in. Call (780-261-3098) or email (Roxanne@C3wealthadvisors.ca) today to set up your next conversation with us.

Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission to Empower You & Your Wealth with Clarity, Confidence & Control.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. Errors and Omissions exempt.

 

 

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.


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Investing basics

Everyone makes it sound so complicated. From “just start here with XYZ online brokerage” to a myriad of books, articles and opinions. But what are the basics?

  1. Start at Home
Investing in your home
Don’t Over Glam

Start at home can mean two things. The first is about investing in your own home. You need a place to live and you might as well create some equity out of that expense. Keep in mind that real estate isn’t always a great investment. Like everything else, the price you pay matters. You will also need to ensure that you maintain that property for it to hold its value. And you need a buyer. Something is only worth as much as someone else will pay for it. Don’t over glam as you risk pricing yourself out of your market area.

 

 

  1. Invest in What You Know
Invest in What you Know
You Know Optometry

This is the second point of starting at home. What do you know about?

Optometry is a given. So invest in your own practice. Here you will have control over the decisions that will directly impact your bottom line. You know it and can control it.

 

 

 

  1. Invest in Profitable Businesses

When it comes to investing in an optometry practice or in owning marketable securities, you always want to own businesses that are profitable. In practice you can turn a fledging private business around and make it profitable. In publicly traded securities you don’t have that kind of control or impact, so it’s vital that the business is profitable and run well.

Profitable businesses have sufficient cash flow to pay their debts (yes, successful businesses know how to use leverage to their advantage), are able to roll profits into expansions and growth, and most importantly, can pay their owners a dividend. It’s vital that you get paid for taking on any risk of business ownership. Seems so basic that most people forget this tenant of investing!

  1. Invest in Sustainable Businesses
Profitable businesses
Standing the Test of Time

Green sustainability aside, a sustainable business is one that is durable and can stand the test of time. These are businesses that, quite simply, are difficult to live without, difficult to compete with, and difficult to replicate.

In Canada, think of CN Rail – it moves, literally, boatloads of goods across a vast distance very efficiently. It would be ridiculous to think that a competitor could easily come in and create a competing railroad today.

 

  1. Price Matters
EBITDA
Understand Prices

As mentioned with real estate, price matters at all times when buying investments. The price you pay for your optometric practice should be manageable and easily recouped by profits over a period of typically 5 to 10 years. The price you pay for marketable securities is also key to seeing growth. No business out there is worth an inflated price.

Think about multiples. You often hear that practices are selling for 3-5X EBITA (earnings before interest, taxes and amortization). This same factor applies to business stocks. It’s common on the stock market to pay over 100X earnings. In fact, at the start of the tech buzz, CISCO was priced at valuations over 200X P/E (price to earnings). CISCO has gone on to be a great business worth owning – but if you bought it at these ridiculous prices, you are still down on your investment. No business is worth an outrageous price.

You can also think of P/E as the number of years it takes to recoup your investment. If something is trading at 200X P/E it will take you 200 years of current earnings to break even. I know I won’t be around long enough to see that happen!

In Summary

Investing shouldn’t be a game you play. It should be done with intention and knowledge. Knowing what you own and why you own it is the basis of all good investments.

Advisory

As your Chief Financial Officer, I am here to help guide you through the various areas of wealth creation. Helping you understand your money and assisting you in making smart financial decisions about your debt repayment, insurance protection, tax management and wealth, are just some of the ways that I work as your fiduciary.

Have more questions than answers? Educating you is just one piece of being your personal CFO that we do. Call (780-261-3098) or email (Roxanne@C3wealthadvisors.ca) today to set up your next conversation with us.

Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission of Empowering You & Your Wealth with Clarity, Confidence & Control.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. Errors and Omissions exempt.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.


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