Learning to set investment goals is one of the most important things you can do as a new investor because it helps you keep track of where you have been, where you are, and where you are going as it pertains to your personal finances and your journey to financial independence.
Here are the first 5 questions you need to ask yourself when setting investment goals for financial independence.
1．What is "your number"?
In order to reach financial independence from your portfolio, how much monthly passive income would it require if you were to withdraw no more than 3 percent to 4 percent of the principal value each year?
That is the amount of money it would take if you wanted to live off your capital without having to sell your time to someone else while enjoying your desired standard of living.
2．What is your risk tolerance?
No matter how successful you are or how much money you amass, some people are wired in a way that fluctuations in their portfolio's market value leads to enormous levels of emotional misery.
They'd rather end up with less money in the future, and enjoy a lower rate of compounding, but have a smoother ride.
Learning to be honest with yourself about where you fall on that spectrum is a big part of fiscal maturity. For example, though it can put you at a significant disadvantage under most circumstances, you don't have to own stocks to build wealth.
3．How do your moral and ethical values influence your portfolio management strategy?
Do you plan on spending all of your capital during your lifetime or do you desire to leave behind a financial legacy for your heirs and beneficiaries?
If you spend through your capital, it means you'll be able to enjoy a higher withdrawal rate than you could support otherwise.
If you don't, you'll get to take a small cut of the stream of passive income from your holdings but the principal should grow over time, provided it is prudently managed, serving as what effectively amounts to an endowment.