Confident Investing Scenario 1: Setting Your Investing Goals

This page presents two methods of setting your investing goals. The first method is followed by most individual investors today when working with a financial advisor. You are essentially told what your goals can be. The second method is one available to individuals who are confident in their investing abilities and feel empowered to define goals that they really want to achieve. The second method is one that you will work with in the NAOI Study Courses.

Goal Creation Method One - You Are Told What Your Goals Can Be

Typically when you go to an investment advisor to set up a financial plan they will ask you about your goals, take a look at your current financial situation and assess your tolerance for risk. A set of investments will then be recommended that correspond to your risk tolerance level and time horizon. The "expected return" of the portfolio is derived from historical data for the asset classes recommended. In other words, once your asset class recommendations have been set, you are essentially "told" what your financial goals can be. 

The following calculator illustrates a process that tells you what your investing goals can be given an expected portfolio return rate. Let us suppose that your advisor has given you an asset allocation recommendation that history tells us has returned an average of 8% over the past 20 years. Plug that number into the first column of the table and then enter the following data in the remaining fields: the initial amount you have to invest, the amount you can contribute on a monthly basis, the number of years until you will withdraw money and your tax bracket (leave at zero for retirement goals). When you click the "Calc" button the "Expected $ Total" will show your expected portfolio value at the specified future point. In other words, you are not setting goals you really want to meet. They are being set for you. Try various scenarios.

Note 1: Enter percentages as whole numbers - e.g. for 6% just enter 6.
Note 2: DO NOT enter commas or decimal points in your numbers - e.g. for one thousand enter 1000 
Note 3: All figures are estimates only

The NAOI turns this planning process around. We believe that instead of historical return rates dictating your goals, YOU should set the goals that you really want to attain. 

This process is illustrated by the calculator below. Using this calculator YOU set the goal amount that you want to achieve - simply enter your target dollar amount in the first column. Fill in the other data as you did in the calculator above. This calculator then tells you the annual return needed to meet your goal. With this number in hand you can begin designing a portfolio that enables you to achieve a goal that gets you excited! It is one of the purposes of the NAOI Study Courses to enable you to meet the "% Return Required" number shown in the rightmost column of the calculator. This number will most likely be higher than market averages - so you will need to apply knowledge, time and effort to reach it. But, the process is now under your direct control.

Refer to the notes above the first calculator.

The NAOI portfolio planning process gives you the potential to significantly beat market averages by dividing your portfolio into an "Active Segment" and a "Passive Segment". In the Passive Segment are your "buy and hold" investments probably consisting of mutual funds, bonds, and cash equivalents. The Active Segment, on the other hand, will contain individual stocks that you will actively manage. (Note that there is a difference between active management and active trading - a difference made quite clear in the NAOI Study Courses). 

With a segmented portfolio the expected return of your Passive Segment is based on historical return data in much the same manner as the traditional methods of financial planning mentioned above. Your Active Segment return, however, is based on how much time and effort you dedicate to education and to the investing process. Use the following calculator to get a better feel for this approach.

Portfolio Segmentation Example: Let's assume that from the above calculator you determine that the "% Return Required" to meet a goal you really want is 17%. Let's also assume that you have developed a passive portfolio segment with an expected return of 12%. Now, and this is key, let's assume that you are willing to actively manage 20% of your portfolio. Enter these numbers into the following calculator. Your entries are 17, 12 and 20 in that order. Then click the Calculate button.

Enter percentages as whole numbers. e.g. for 7% just enter 7

Factoring In Your Involvement 

Hopefully from the above calculators you can see the unique approach that the NAOI Study Courses take. In typical financial planning the only way to achieve higher returns is to assume higher risks. The NAOI believes that higher returns can also be achieved through education and time devoted to the investing process. In other words, we believe that you CAN directly influence your total portfolio returns by learning how to invest and participating in the investing process. You CAN achieve higher returns without a corresponding higher risk!

Potential - Yes, Guarantees - No

Remember, we can make no guarantees related to how effective your investing activities will be. Simply "putting in the time" will not automatically result in increased returns. Our goal is to give you the knowledge and tools to maximize the potential of your being able to achieve higher-than-market returns. In investing, as in life, there are no guarantees.