As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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Saturday, 20 February 2010

Knowing Your Investment End Goal

One blogger mentioned: "Illusion of Winning" and "Fear of Black Swan". Yes, a black swan event can happen and take back all the past winning and even more." So we should really fear and prepare for it.

We all know our investing goals:


But do we know when to stop?

Since all non-capital guarantee investment by nature is risky; a black swan event can happen so do we need to set an investment end goal to stop and protect ourselves?

My Goal of the End Game

My goal of the End Game is to accumulate enough wealth for me and then I will stop putting my wealth at risk. I will stop the gambling and risk taking with active investing or any non-capital guarantee investments.I would finally have enough money and personal power to walk away from this investing game and spend the rest of my life doing something else!


When exactly do I know that I have reached the End Game?

When I have enough principal invested safely for my after tax-income to match or exceed your annual expenses on an ongoing basis. This would include over budgeting for the lifestyle that me and my wife truly need.

3 comments:

  1. As Man grows, he become more greedy and demands more. I always told my friends if Warren Buffet did not stop trading y should u be stopping :P.

    By the way, u nv mention how much cash u need to have then u stop hahaha

    ReplyDelete
  2. Hi Dou,

    In 31 May 2008, Bro Dream also asked the same question. :-)

    http://createwealth8888.blogspot.com/2009/06/how-much-is-enough-running-monte-carlo.html

    http://createwealth8888.blogspot.com/2008/09/retirement-drawdown-and-passive-income.html

    More on retirement ...
    http://createwealth8888.blogspot.com/search/label/Education%20-%20Retirement

    ReplyDelete
  3. Hi CW8888,
    It's really great if your goal is really what you want.
    I like to share what Michael J Hanson says about Personal Goals:
    Hope you enjoy.

    Michael J Hanson:
    Personal Goals.
    "What do you want for your money? How should it work for you? A standard question most are asked by their investment adviser is if they want “Growth, Income, or Capital Preservation? Choose one.” Huh? That question is pretty dumb. Why? Let’s take “Capital Preservation” first. I have never met anyone who invests with the long term idea of losing their capital. Never. So why would capital preservation be a primary goal? Seems pretty implicitly wrapped up in the idea of investment in the first place, doesn’t it? Then there’s “growth” or “income.” I don’t understand those either. Why would those two necessarily be mutually exclusively as goals? Why couldn’t you have income and also a goal of growth? Generic “growth” isn’t a real growth, and a goal of “not losing money” is similarly abstract and won’t work either.
    These basic questions – standard in investment advisory today – are not just sufficient; they come from an invalid point of view. Namely, that investing goals should have something to do with distinctions about income and perception of risk. I don’t like these options – they don’t say anything about your actual goals, what you really wish to achieve. A better way to consider goals is in term of terminal value. Terminal value is a way to think about where you want things to be at the end. Figure out the end goal then reverse engineer the plan from there. Here are a few reasonable ways to decide on your terminal value based on the type of goal you set:
    1) Maximize terminal value:
    To grow your assets as much as possible in whatever time frame you have designed for them.
    2) Maintain purchasing power:
    Structure your investment to keep up with the erosive effects of inflation so your money can always purchase the same relative amount of goods and services.
    3) Maintain current value:
    Similar to maintaining purchasing power, but also growing your assets enough to account for whatever cash distributions you may take overtime.
    4) Deplete portfolio over time:
    Maybe you decide your kids are spoiled brats and so are your grand kids – no need to leave them anything. You just want to have fun in your life so you want to spend it all. Your goal is to splurge on fun stuff and have $1 left in your account on the day you die. (Happens more often than you think, and it’s a perfectly reasonable goal.)
    Notice how different goals will likely require much different tactics. So figure out what’s your endgame first. Someone looking just to combat inflation does’ necessarily need to cope with the volatility of stocks (maybe they can just use inflation indexed bonds), but someone wanting to maximize terminal value or grow the portfolio for their heirs certainly will.
    But that isn’t all. We need to consider one more feature: time horizon. Time is usually the ultimate difference. Folks are so darned worried about return in say a calendar year, they forget about time.
    I’ve got good news and bad news for you – you probably going to live longer than you think. Good? Yeah! You get to live longer! Bad? Yeah! That’s a long time your money has to last you.
    How long? Put it this way: A 55 – year old can expect to live another 30 years to be 85. That’s the average. Half will live longer. Meaning if you’re 55, you should plan for at least 40 years to be safe. And medical science marches on, often at an exponential pace. So in those 30 years to come, the average life expectancy will rise.
    Now you’ve got a hold on your goals, what the endgame is, and how long you have to get there. Now - and only now – can you start thinking about how your portfolio should look?

    ReplyDelete

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