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Planning Your Investment Strategy? Start With Your Goal And Work Backwards.

Discussion in 'Investor Psychology' started by Corey Batt, 31st Oct, 2015.

  1. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    One of the most common questions early investors ask is: “What sort of property should I buy/What should my strategy be?” In many cases it can be the first question they ask – but cannot be accurately answered without first knowing something far more important.

    It’s hard to plan a journey unless you know the destination; the same rules apply when trying to form an investment strategy. Only once you have a goal can you begin mapping a path for moving forward.

    Use your goal as an acid test for your choices – this will help you make better investment decisions. For example, if your goal was to retire on a portfolio of investment properties which generated rent, would you buy a property which was only earning you a 2% yield? Likewise if you were looking to build a portfolio with exceptional capital growth so you can then diversify into growing a share portfolio, would you buy a property in a regional area with strong cash flow but long term has shown poor capital growth?’

    Keys to Setting a Goal

    Set it early

    When you’re expending significant time, effort and money into investing, it’s fairly important that you know you’re heading in the right direction. Set yourself a goal early so that you can work towards it – it doesn’t have to be the ‘perfect’ goal, and it might very well change. Once you have something to aim for on the horizon, you can start mapping your future plans with a bit more ease and efficiency.

    Review it often

    A goal doesn’t have to be a static aim which never falters, or changes. Your circumstances can change, expectations grow or any other number of variables that life can throw at you. Don’t feel bad about revising a goal – each time you adjust and alter your end goal you’re actually fine tuning your plan to fit the future needs more accurately.

    Stick to it – a goal is only so useful if you stick to it

    It’s there for a reason, aim for it! Not all decisions you make will be 100% directed to your goal which is OK – but you do need to question what value you are gaining by doing something which is directly against your long term goal.

    Have micro goals

    Use incremental goals to keep you on your course by providing ‘mini successes’ along the way. Outside of your financial abilities, you need to keep yourself psychologically geared towards your goals. Mini goals will help you feel progress in what is a long term plan. An example of a mini goal could be by achieving a certain number of investment purchases, paying off unnecessary personal debt (credit cards, car loans) etc.

    Don’t be afraid to change your goal

    Much the same as reviewing your goal – you may find that you can do a complete change in course and start working towards a different goal, this is OK. We can’t always make the right choices, but there is no value in sticking to a course out of stubbornness. As your life develops the goal can change as a point of necessity – changes in your employment, family, relationships.

    I’ve established my goal, how does this help me work out my strategy?

    Having a goal won’t make your strategy crystallise into existence without any thought, but it certainly will help you narrow down your options. By comparing what a strategy can achieve and how this relates to your goal, you can eliminate strategies which don’t fit your goal. Couple this with comparing your risk profile; it’s easy to quickly come up with a short list of options which you can work out the probability of success.

    You may not narrow the list to one core strategy, but that’s OK. As you develop your skillset and experiences investing a definitive path will become apparent.

    So armed with this information, you can go out and form a long term goal to start working towards. Ask yourself why you’re investing, what you want to achieve and what your long term expectations of life are today and in the future.
     
    Tyrell, samiam, Louis XIII and 10 others like this.
  2. bob shovel

    bob shovel Well-Known Member

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    Great post!

    Starting out I wasn't able to know what a reasonable or possible end goal was, the idea of 10+ properties or retiring from property seemed like I was being too cocky or setting something unrealistic. I had an interest in property but how I jumped into the game and advanced wasn't so clear.

    So starting out don't be afraid to have a "loose end goal " it will change and evolve as you learn and do more. Set some short goals eg. Buy first ip, join pc and ask for help, save $x, advance career. All these help get the ball rolling and learning.
    Work out your interest level in property, do you want to jump into everything, Reno's, development, unit blocks, commercial or do you want it to be a smaller portion of your portfolio if you want to concentrate on shares or other investments, do you want to work your way up the ladder in your career and/or concentrate on studies. All of these should be looked at and become part of your goals, it's not just about buying x properties, your career and life need to come to the party too
     
  3. spludgey

    spludgey Well-Known Member

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    I've posted about this before and I know that it works for many people, but for me personally, I completely reject this point.

    I will not review my goal until I have achieved it. I see the whole point of goal setting as not moving the goal posts.

    I would however support the point of tracking your goals frequently.
     
  4. devank

    devank Look, lets just get on with this, ok? Premium Member

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    I totally agree with you, Corey. Nice post. I tend to apply this to work or general life stuff.

    Somehow, I don't apply the same when it comes to property investing. I had a general goal of reaching 4 mil asset value by the age of 40 (now it is changed to 5 mil by the age of 41 :) ). I didn't have any solid plans to get there. I have been simply taking the best possible action at any given point in time.
     
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  5. SK Investments

    SK Investments Well-Known Member

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    Great post Corey, I'm sure this will help a lot of people.