Thursday, November 29, 2007

Update on Goals

I've kept the 2007 goals on the sidebar but I've taken down the goals for 2008 and beyond as they are looking increasingly unrealistic. Exchange rate fluctuations mean that a goal in any particular currency is hard to hit as do stock market fluctuations for buy and hold investors. Perhaps I could come up with a currency neutral measure of net worth gain. But probably I am going to go for aspirational goals going forward: Increase net worth (increase non-retirement net worth - which is harder), increase trading income, etc. It's easier also to set goals for investment and trading performance relative to a benchmark (Increase non-retirement net worth faster than the MSCI index?). As for the goal of a net worth of $1 million, I now project that that could occur by the end of 2012 rather than 2010. It remains an interim goal but setting any date on achievement of the goal is too hard. I'll do a revised set of goals later in December.


pfstock said...

Let me be the first to commend you for updating, actually removing, your rather lofty financial goals. I think that your posts have added a healthy dose of reality since you left the university (polytechnic institute?).

Personally, I don't set specific dollar value goals. I think that increasing your net worth and income year over year are the most realistic goals that you can set. I even consider that comparing performance to the stock indices can be dubious.

Suppose that 2008 is similar to 2002 when the S&P dropped over 23% in a year. If your portfolio lost only 18%, would you be celebrating the fact that you beat the index?

mOOm said...

Beating the index (maybe in a risk-adjusted sense) could be the only justification for trying to manage your money yourself beyond educating yourself about finance through the process. Losing 18% would be bad but better than losing 23%. In 2002 I lost more than 23%. Increasing non-retirement net worth faster than the MSCI index would mean that we were either getting substantially above market returns (just getting market returns would mean after tax being behind the index) or saving from non-investment/trading income, or at least not spending more than the combination of Snork Maiden's income and excess returns from trading. said...

I thought your 2008 goals and timeframe to hit US$1m looked a bit optimistic, so it's good to revise them as your situation changes. But I still think it's important to set absolute targets (based on what you realistically can expect to earn and save, and historical asset returns) rather than relative performance. After all, in the long term a comfortable retirement will depend on achieving reasonable absolute returns, not on whether you have been able to 'beat the market'. I think a focus on absolute returns can help one focus on asset allocation rather than too much on experimenting with trading stategies.