When investing, you need to do the math

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The first rule of investing is to do the math.

Put simply, when you save your money and make investments, what you’re doing is constructing a simple puzzle. Each part of the puzzle fits together.

The same is true for your long-term saving and investing efforts. Everything should fit together to achieve your financial objectives.

For that, I suggest doing some easy arithmetic to better understand how to be successful.

For example, assume you’re planning for your retirement. There are a few calculations that would be useful to ensure your success.

If you have a financial advisor you can request assistance. Or, if you self-manage your investments there are online tools that can assist you.

There are two main parts to calculating what you need to achieve your retirement objective.

First, determine how much investment capital is needed at the beginning of retirement. At what age do you plan to retire, and what is the length of retirement you’re planning for?

How much money do you need your retirement funds to provide every year? At this point, you have a retirement savings target.

The second calculation is how to reach your retirement savings target. This will be a result of several things.

What you have saved to date, and how much will you save on an annual basis. Then estimate what rate of return you will earn on those savings.

Having the discipline to save regularly can be difficult.

How much you regularly save should be a combination of how much you can afford to save and how much you need to save.

The final decision to your savings plan is deciding the allocation between stocks and bonds. Stocks will most likely provide a higher return over time, but you should expect normal volatility in the value of your investments.

A little arithmetic is necessary to plot your course to achieving your financial objectives.

 

 

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI.  ACPI is a member of the Investment Industry Regulatory Organization of Canada (IIROC).  The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Peter Watson Investments.