Investing without clear goals is like taking a taxi and not knowing where exactly you want to go. It’s true both for traditional and digital assets. Read this article to understand how to set smart investment goals and avoid common mistakes.
TABLE OF CONTENTS
Why Setting Goals Is a Must-Do
Setting goals is super-important as it gives you an idea where you are moving to, financially. This process helps you:
- Understand how much you can invest;
- Make a roadmap and apply it to measure your progress;
- Select the right assets for your portfolio;
- Balance the risks and opportunities these assets present;
- Calculate your potential profits;
- Recognize the right moment to buy and sell;
- Avoid uncertainty that triggers anxiety that leads to mistakes.
Goals can be Short-term, Mid-term, and Long-term
In terms of time-frame, your investment goal may be:
- Short-term: if you hope to achieve something within 1 to 3 years, you are dealing with a short-term goal. It can be anything between buying a hi-end gadget and having a baby. Some popular short-term goals are funding a wedding, buying a car, or purchasing an apartment.
- Mid-term goals: these goals are less pressing. They are ready to wait for 5 years or more, and the deadlines are less rigid. For instance, it could be a big house renovation.
- Long-term goals: in this case, you have up to 30 years to achieve your objectives. The typical examples are retirement or buying real estate or land.
Why is it essential to know the horizon you deal with? Because it defines the level of risk you take.
Short-term goals call for more stable and conservative assets: say, if you plan to buy a car in 1 year, you will need to pay for it soon. Far-away goals leave more time for experiments with smaller and riskier assets that promise higher potential returns.
How much Money should I Invest?
The golden rule is to invest 10 – 20% of your income. Setting this percentage aside is almost painless for most people.
⚠️ Note: you shouldn’t invest more than you can afford to lose. Don’t mortgage your family house because some expert says BTC is starting the biggest bull run and its price will double in 3 months. Miracles do happen from time to time, but there are no guarantees.
4 Questions to Figure Out Your Goals
To shape your goals and figure out their shelf-life, answer 4 simple questions:
- How much am I going to invest? When you specify the amount, it helps you set an achievable goal. If you have $100 to invest, it would be unreasonable to expect $ 1,000 of profit by the end of the month. Be realistic.
- What do I seek to achieve? Calculate the exact amount you need to achieve your goal. Consider inflation and probable price increase. Can your dream house become more expensive if they gentrify the neighborhood?
- When will I need this money? The answer helps you choose the right asset/s to invest in. In general, the closer the goal, the less risk you can take.
- How high is my risk tolerance? Think of what will happen if you fail to get the money you need. Can you put your goal at risk to get (potentially) bigger returns?
How to Set Measurable Investment Goals
Apply the SMART approach to make your goals:
Specific: A big house by the sea is just a dream. A 200㎡ vacation house in Costa Brava with a sea-view, 3 bedrooms, a terrace, and a pool is a specific goal with a concrete market price.
Measurable: Express your goal in dollars or euros. For instance, if you are investing for early retirement, set the age (45) and the exact amount you want to possess by that time ($500,000). If necessary, set intermediate goals to measure your progress more accurately.
Attainable: Make sure your goal is possible to achieve. It makes no sense to set unrealistic goals that require exceptionally good luck. If everything goes better than planned, you can always raise the bar.
Rewarding/Relevant: Your goal should be emotionally charged. So, do you really want to live in this house with a sea view? Or do you need it to keep up with your wife’s friends? Be honest. Otherwise, the lack of motivation will sabotage your efforts.
Time-bound: A smart investment goal has a “best before” date on it. Set a realistic time-frame. Make your deadlines clear and keep them in mind.
Pitfalls to Avoid
When setting your crypto investment goals, avoid these common pitfalls.
- Falling for guaranteed profits: there is no such thing in the world of crypto. Any digital asset is too unstable to guarantee you a certain amount by a specific date. When someone makes such a promise, they are either ignorant, wishful thinkers, or scammers.
- Using the money you need for other things: leave your emergency or college funds alone. Also, don’t use the money you will need by a specific date (or may need at any time). Even if you invest it in a relatively stable cryptocurrency like BTC, this date might be the worst moment to cash your digital funds.
- Relying on a single asset: never rely on a single asset for the success of your investment goal. Instead, diversify your portfolio to spread the risks across many assets. Here are some tips to help you do it.
- Ignoring taxes: though no country sees BTC as legal tender (i.e. normal money), there are often taxes to pay. They depend on what you do with your crypto and how long you’ve been holding it. Make sure these deductions don’t come as a surprise. Otherwise, your dream house will be smaller or shabbier.
Tools That May Come Handy
Here are a couple of tools to make setting goals easier:
Bitcoin ROI (Return on Investment) Calculator
Calculate the profits you have made since you invested in BTC. Or the profits you would have made if you had invested earlier.
Ethereum ROI Calculator
Do the same for Ethereum.
Bitcoin taxes (USA)
Calculate the amount of tax you owe to the state using this simple and affordable calculator.
Risk Tolerance Calculator
Answer 10 multiple-choice questions to know your risk tolerance score.
Investing in cryptocurrencies may be a confusing experience if you’re going into it blindly. Whatever coin you buy, the first step should be setting a goal that meets your needs, capacities, and risk profile.
Hopefully, now you have the basics of this science covered.