The Key to Financial Planning - Your Financial Objective

Your Financial Goal is the Key Ingredient to Cooking Up
The Best Financial Plan and Optimal Investment Strategy
The key to any investment planning is starting with a financial objective. What exactly is the
financial goal?

All too often people care more about return or safety when considering investment options. What should be considered first and foremost is the needs of the investor. What is this money being saved for? How long will it be before the money is needed?

Potential returns and risks of individual investments are irrelevant until the investor's objectives and goals have been clearly defined.

For instance an S&P 500 index fund that will most likely Avg 12% over the next 15 years sounds much better than a money market fund that will average 3% over that same period. This will hold true for many investors but not the high school student saving for college who will need the money in 18 months. That student may very well be disappointed when they withdrawal the entire account that has lost money because they bought in on a market down cycle. The student is better off with something safe because they can't risk a loss.

On the other hand, the recent college graduate who just found a job and wants to start saving for retirement will be better off in the stock market.

This is why buying investments and deciding how to build your portfolio has to start with your financial objective.

Determine Your Financial Objective

Understanding investor objectives can be tricky. Here are some great questions to answer when coming up with the objective of financial planning.

  1. How much money is needed?
  2. When is the money needed?
  3. What is the likeliness that an emergency or other need will come up and the money will be needed early?
These are the three questions that truly determine how a portfolio should be invested.

The key to solid and effective financial planning is all about knowing what the money being invested is for, how much will be needed, and when the money is needed. Without knowing these particulars pertaining to the subjects financial needs it is impossible to correctly invest the portfolio's capital. This is why it is absolutely imperative all individual investors sit down with their financial planner and discuss their individual financial needs before coming up with a financial plan. 

If your Financial Advisor doesn't seem interested in these questions then it is very important that you find a new one. There are no exceptions to this rule.

So remember, the key to financial planning is the financial objective

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  1. You clearly stated that part of financial planning is to know if you are capable to provide the money you need for investing. And I think I did make the right choice when I invest in binary options with a $200 on my pocket, not so high but I think I am happy with the returns I am getting right now. The returns may not be so high but good enough for me. I continually check on optionfair broker review sites so I could get latest update and I could be able to make a turn around on every trade that I have.

  2. I feel like if you trade or rather sell options you are not really investing. you are not even really trading you are simply providing a leveraged product designed to pay a bit every time for your troubles to create them.