{"id":105977,"date":"2019-01-28T14:30:16","date_gmt":"2019-01-28T21:30:16","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=105977"},"modified":"2021-03-16T14:52:01","modified_gmt":"2021-03-16T20:52:01","slug":"defining-goals-developing-investment-philosophy","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/defining-goals-developing-investment-philosophy","title":{"rendered":"Consider This Before Defining Your Investment Philosophy"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">There&#8217;s a particular long-term investment philosophy that has served me and my clients well, and it can do the same for you. It consists of two critical elements:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The investment strategy and tactics you employ should <strong>flow from your investment goals<\/strong>.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Even more importantly, the optimal strategy should offer\u00a0<\/span><b>the simplest and most elegant solution to reach those goals. <\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Let\u2019s take each of those elements in turn.<\/span><\/p>\n<h2>Prioritizing Goals Before Developing an Investment Strategy<\/h2>\n<p><span style=\"font-weight: 400;\">Personal goals should inform your investment philosophy. Developing a strategy and implementing tactics without clearly identifying your goals beforehand is like shouting random solutions to a math problem you haven&#8217;t even read yet. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">At best, it\u2019s a shot in the dark. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">When it comes to real estate-related goals, investors must choose one of two paths. Do you want to set an <\/span>income goal<span style=\"font-weight: 400;\"> or an <\/span>ego goal<span style=\"font-weight: 400;\">? <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here&#8217;s an example of each.<\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\"><strong>Income goal:<\/strong> I want to create $50,000 per year in passive income through real estate investing in order to gain <a href=\"\/renewsblog\/2016\/03\/28\/financial-freedom\/\" target=\"_blank\">financial freedom<\/a>. <\/span><\/li>\n<li><span style=\"font-weight: 400;\"><strong>Ego goal:<\/strong>\u00a0I want to build a real estate empire by maximizing the number of units I own.<\/span><\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-106442\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/goals.jpg\" alt=\"investment philosophy, investing goals,\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/goals.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/goals-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h3>Directing Your Focus Toward One Goal<\/h3>\n<p><span style=\"font-weight: 400;\">These two types of investing goals don\u2019t have to be mutually exclusive over the course of someone\u2019s life, but investors should only focus on one <\/span>at a time<span style=\"font-weight: 400;\">. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Much like the human brain can&#8217;t actually multitask but instead\u00a0<\/span><span style=\"font-weight: 400;\">switches<\/span><span style=\"font-weight: 400;\">\u00a0back and forth between tasks, pursuing these two types of goals simultaneously means you\u2019re not giving your all to either. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">When I talk about ensuring you&#8217;re clear about a goal, I mean reducing it down to its essence and coming up with actionable, concrete steps to achieve it. General goals are typically neither actionable nor concrete. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">For instance, if your goal is to reach <a href=\"\/renewsblog\/pursue-financial-freedom-unapologetically\" target=\"_blank\">financial independence<\/a>, you&#8217;ll have to dig deep to figure out exactly what that means. It should be personal. What may help <em>you<\/em> acquire financial freedom might be insufficient for another person or excessive for someone else. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">What would it take for you, personally, to become <a href=\"\/renewsblog\/product-review-mint\/\" target=\"_blank\">financially independent<\/a>? <\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">Do you need passive income that will simply cover your current expenses (read: just enough to maintain your current lifestyle)?<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Or do you plan to travel and want to keep investing and therefore need passive income that can replace your current salary?<\/span><\/li>\n<\/ul>\n<p><em><strong>Related:<\/strong>\u00a0<a href=\"\/renewsblog\/screw-it-lets-do-it\" target=\"_blank\">Why Newbies Should Adopt Richard Branson\u2019s \u201cScrew it, Let\u2019s Do it\u201d Philosophy<\/a><\/em><\/p>\n<p><span style=\"font-weight: 400;\">The point is to spend some time thinking about what you&#8217;re trying to accomplish and what it will take to get there. Your answers don\u2019t have to be 100 percent exact, and you don\u2019t need to have all the answers now. But you should be thinking about it.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Once you are clear on the type of goal you want to pursue and have reduced the goal to its essence, the strategies and tactics you employ will naturally flow from there.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-106444\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/thinking.jpg\" alt=\"investment philosophy, investing goals\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/thinking.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/thinking-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>Identifying the Best Way to Reach Your Goal<\/h2>\n<p><span style=\"font-weight: 400;\">That brings us to the second (and most critical) element of my investment philosophy. The optimal investment strategy is the one that offers the simplest and most elegant solution to help you <a href=\"\/renewsblog\/the-problem-with-your-goals\" target=\"_blank\">accomplish your goal<\/a>. \u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If your aim is to create passive income of $50,000 a year through real estate investing, you can achieve that by owning five units free and clear or 25 leveraged units. Either will solve the problem. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Ask yourself, \u201cWhich one is the simplest and most elegant solution?\u201d The answer should become obvious. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">In the aforementioned example, the smaller free and clear portfolio is a far simpler and more elegant solution than a larger leveraged portfolio. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Why? It\u2019s easier to acquire and manage fewer units. Plus, a smaller portfolio should equate to less hassle. Last but not least, it would mean far less risk for the same level of income.<\/span><\/p>\n<p><em><strong>Related:\u00a0<\/strong><a href=\"\/renewsblog\/2016\/06\/08\/real-estate-investors-learn-apple\/\" target=\"_blank\">What Real Estate Investors Can Learn from Apple\u2019s \u201cWhy\u201d-Driven Philosophy<\/a><\/em><\/p>\n<p><span style=\"font-weight: 400;\">The same principle also applies to investing in the stock market.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">On one hand, you could try to \u201cbeat the market\u201d by timing investments such that you&#8217;re buying when the cost of shares hits bottom and selling when they&#8217;ve topped out. To do this might mean investing in risky and complicated securities you don\u2019t really understand or finding &#8220;expertly managed funds&#8221; that promise &#8220;extraordinary performance.&#8221;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">On the other hand, you can automatically invest a percentage of your income in index funds at regular intervals (called dollar-cost averaging), regardless of how the market is doing. Then, you can focus on managing variables that are actually within your control, such as keeping costs low, staying the course, and never selling based on fear. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The second option is by far the simplest and most elegant solution. It will produce the results you desire without subjecting you to a rollercoaster of euphoric peaks and panicky dips.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Life is plenty complicated as it is. Your investing philosophy doesn&#8217;t need to be. Let it flow from your goals so it actually serves you, simply and elegantly.<\/span><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/real-estate-investment-calculator?utm_source=renewsblog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91220\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Comments, critiques, suggestions?\u00a0<\/em><\/p>\n<p><strong>I&#8217;d love to learn about your investment philosophy!\u00a0Share it below.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What&#8217;s your real estate investing philosophy? Do you even have one? Learn how goal-oriented strategies can help you achieve financial freedom\u2014or whatever it is you&#8217;re working toward!<\/p>\n","protected":false},"author":800,"featured_media":106445,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524],"tags":[],"class_list":["post-105977","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/105977","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/800"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=105977"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/105977\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/106445"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=105977"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=105977"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=105977"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}