Analyzing growth stocks is an important focus for any investor. This is especially important, since stocks are an irreplaceable part of any good investment plan, and since unbiased stock research is hard to find. Still, we need to look at the big picture once in a while. Since so much has changed lately, this may be a good time to take stock. Many have reevaluated their investment strategies. The problem is that many of these reevaluations are moving people away from their goals. As the market has dropped, rather than moving toward buying at the cheaper prices, weve seen people move away from stocks, a strategy which has little long-term benefit. THE PICTURE Its all about planning for the future. The first step is to picture the future you have in mind. Most of us already have part of the picture in our sights. We picture ourselves in a home, with food, heat, clothing -- the necessities. Beyond the basics, some of us may picture ourselves raising a family and possibly supporting our kids education or business ventures or helping them buy their first home. Others may imagine supporting a church or charity, or accomplishing some great humanitarian goal. Most imagine some type of vacation at least once in a lifetime, or a personal goal that weve always wanted to achieve. Regardless of specifics, trying to get as clear a picture of your intentions as possible is an important first step. Once we know where were going, we can begin mapping our path THE PLAN Those who fail to plan, have already planned to fail. It is nearly impossible to reach a goal if theres no strategy in place. Of course, there are a variety of personal decisions and trade-offs involved in any plan, and only a portion of these involve finances. Lets focus here on the financial dimension of the plan, because the financial decisions are often the ones that prevent us from reaching our goals. Financial decisions are never easy, and the issues quite often reach to the core of our being. They involve our deepest values, our choices of what is most important in our lives. If other people are involved in our life, we need to balance our values with those of our families. Creating the financial plan involves three steps: goal-setting, measurement and implementation. Goal-setting requires us to determine both the specific achievements we desire and the timing of these achievements. For example, it is not enough to know that we want to own a 1000 square foot home on the beach in Hawaii. We must also identify any time-frames we have in mind. Measurement requires us to evaluate the cost of our goals, and determine our pacing. We must figure out what it will take, then, based upon our timing needs, pace our plan by calculating what the per-year savings must be and the growth rate our saving must achieve to accomplish that goal. Pacing for our goals is the most technical portion of the planning process, and often where people fall down on the job. Inflation in the economy is a complicating factor here too. If we dont take inflation into account, a long-term plan is often doomed. Imagine someone who saved up for 30 years to buy a house, ignoring inflation. Shed have saved up $25,000, and wouldnt be able to afford anything. Her cost calculation must recognize that money loses value over time. Making these calculations can seem intimidating for the inexperienced. We have charts and graphs that we use to assist our clients in making these judgments, but for those who arent nearby, the American Savings Education Council has some excellent resources on the web that are fairly simple to use. Once weve gone to the trouble of learning precisely what we need to achieve our goals, its time to begin translating these specifics into an action plan. This is part of the plan implementation. The implementation stage requires us to determine the best way to reach our (now very specific) goals. The factors we will need to look at include income levels, savings decisions, and investment strategies. Alas, this is all part of the next installment in this column. Stay tuned. |
