Your investment goals are the performance end of your investment philosophy. ‘I want to get rich quickly’ is a perfectly reasonable and practical investment goal that can be accomplished, if you can tolerate the risk that goes with it.

Your investment goal may be related to a specific amount. For instance you might wish for a particular level of income from your investments, or for a specific amount as a wealth goal, by a particular time.  The portfolio that you will construct and manage will be designed to achieve your goal.

You can define your goal, and let your investment philosophy emerge from that. For instance if you need your current savings of $100,000 to grow to $1million by 2010, your compound average annual return from now to then will need to be 21%. Over the past 12 years the S&P 500 share price index, which is a broad measure of stock market performance, has returned an average of 14% per year. The average long U.S. treasury long-term bond has returned 10.2%. The past 12  years have been unusually good ones for stock market investments. Over the past 30 years, the S&P 500 index has returned an average of 10.7% per year while long U.S. Treasury bonds have returned 11.9% on average per year.

That means that to achieve your goal of 21% per year over the next 12 years, you will have to take on a very high level of risk and perform an aggressive investing strategy. If your goal for your $100,000 in savings is to generate $6,000 per year in income, an average annual return of 6%, your investment strategy can be more conservative, and your risk level much lower.

Another important consideration in formulating your goal is the amount of time you plan to spend with your investments. The higher your return goals are, the more time you will need to commit. To generate a high rate of return you will need to own a large number of very high growth companies. You will need to be knowledgeable about those companies and prepared to make decisions frequently--maybe as often as weekly. If your return goal is more modest, your time commitment can be smaller, and decisions can be made less frequently.

Over the very long-term, investments in paper assets such as bonds or stocks have returned rates similar to the nominal rate of growth in the economy, plus 3%.  There has been a somewhat higher return from stocks than from bonds. The recent nominal rates of growth in the U.S. economy have been around 5%, so a reasonable moderate risk investment return goal now might be 8% per year. If you desire a higher rate of return, you will need to invest more aggressively, and accept a higher risk.

Back to Mission