Have you ever sat down and written out your goals?
Goals are great to have for many aspects of life from wanting to lose weight to going on vacation to saving for retirement or a college education.
Write your goals down. They are not goals until they’re on paper. Then break up those longer-term goals into short-term accomplishments that lead to that goal.
Something like saving for retirement or a college education can be far away, making it easy to lose sight of that goal. But breaking it up into mini-milestones is one way to keep that drive going. And you can do this with anything.
How To Attack Any Goal
A few years ago, I wanted to lose some weight. So before I hit the gym, I did a little research and found out that some of the most effective weight loss programs combine diet, cardio and weightlifting. Up to that point, I had only been doing cardio and had seen mild results. So I added in these other elements of weightlifting combined with diet. I’d never watched what I ate before, so this was new and took some extra discipline.
Setting short-term goals kept the ultimate goal in sight. For example, after working out and eating right for the first 10 days (those were the toughest), I rewarded myself with new running shoes. Then after achieving another small goal of losing the next 10 pounds, I rewarded myself with some new clothes and so on. My ultimate goal of losing 30 pounds was accomplished after a few months and it felt great. If it weren’t for breaking up the longer-term goal into short-term goals, I’m not sure I would have been able to accomplish the task.
Set Goals for Your Portfolio Too
Whether you are setting a short-term goal of taking a vacation or a longer-term goal such as planning for your retirement, this technique will help you keep the big picture in front of you instead of years down the road.
Start with the ultimate goal and work all the way back to the next 90 days. Where do you want to be in the next 90 days with your investing? Do you need to beef up your 401K or IRA contributions if you’re not already maxing them out? What about your taxable accounts? And how do you make that money work for you so that those ultimate goals are met? Have you experienced the type of success in your trading in both up and down markets that will help you to grow those assets? Or are you just hoping that things will work out all on their own?
In order to reach those investing goals, your trading strategy needs to be consistent even when the market is not.
Many investors have years where they do very well and make money in the market and then years when it’s not so good and they give it all back and then some.
Contrary to popular belief, there are hundreds if not thousands of stocks that go up in flat or bear markets if you just know where to look. And if you could find only a few of these and make a couple of better investing decisions, the results in your portfolio would be remarkable.
One way to make those better decisions is to use sector rotation to your advantage. Roughly 50% of a stock’s price move can be directly attributed to the group that it’s in. A study of the Zacks Industry Rank showed that the top 50% of the industries with the best (lowest) Zacks Rank outperformed the bottom half by a factor of more than 4 to 1. And you can give your portfolio an even more dramatic boost by getting into some of the top-rated stocks within those best industries.
Even if you’re consistently in the best sectors and industries, being in the market means every few steps forward could be met by a step or two back. But your steps back will be smaller if you’re in better industries and stocks.
Profiting in Bull and Bear Markets
Around 70% of stocks go down in a bear market, which means there are still around 30% of stocks going up and even making new highs. Even though 2008 was not a typical bear market, there were still stocks going up. As the S&P 500 lost -37%, Zacks had some strategies that were up over 13% and more. That would have been a considerable advantage, starting off the rebound of 2009 with almost a 50% lead on the market.
Granted, the bear market of 2008 and recovery of 2009 are extreme examples of the ups and downs of the market. But this underscores the need to have a plan to make money no matter what the market is doing. You need to take advantage of the up markets and manage your risk properly in the down markets so your portfolio is positioned to take advantage of the rebounds that follow.
The Bigger Picture
In spite of last year’s record performance for the S&P 500, the period of 2000-2009 still delivered its worst 10-year total return of 10.5% for an average annual return of only 1.2%. The best 10-year return (total return of 469.5% for an average annual return of 19.1% per year) occurred during 1990-1999. While you could have used the dart board approach and been successful in the 90s, a more proven approach for picking stocks was necessary in the last decade and will be indispensible going forward.
The numbers add up quick. A return of only 5% per year for the last 10 years would have given you a compounded return of 63%. A 10% per year return would have yielded 159%. And if you were fortunate enough to make 28% per year as the Zacks #1 Rank stocks have done, you would be up over 1,080%. At that rate of return, a $10,000 portfolio would have turned into over $118,000! Compare that to the S&P 500 where $10,000 would now be worth only $11,046, and you’re looking at a huge difference in fortune.
If you could attain even a fraction of these returns, you’d be reshaping your future, wouldn’t you? Think about all the freedom that comes with financial independence.
You Can Do This
Simply ask yourself four questions to see if you’re on the right track:
- Have you met the goals for your portfolio, even the minor ones?
- Were you profitable over the last 10 years, and if so, as profitable as you hoped?
- Looking forward, how are you going to set up for the next few years of your investing life?
- Do you have a strategy that can help you make the types of returns you need to make to meet your goals? It’s pretty unlikely a strategy that has not helped you meet your goals to date will all of a sudden turn around and get you to where you want to go.
Remember, when looking at your ultimate goal and a more fulfilling future, start small. That first mini-goal leads to the next and so on.
Whether it’s losing that first 10 pounds or identifying what kind of trader you are, taking that first step empowers you to meet your ultimate goal.
And identifying what type of trader you are and what the right strategies are for your unique needs is easier than you think.
To begin achieving your goals, you may want to look into our Zacks Method for Trading: Home Study Course. This is a DVD/workbook set that guides you to better trading step by step. It helps you identify what kind of trader you are, find stocks with the right style characteristics, and trade them to consistently beat the market and to reach your goals. It also goes over some of our best-performing strategies from all of the different trading styles, and shows how to create your own.
If you’re interested, be sure to check it out before a special arrangement ends no later than 11:59 pm Saturday, April 3. (Earlier if all spots are taken.) Until then, we’re making the course and all its materials available to you at our cost.
Thanks and good trading.
Jon
Jonathan Schaefer
Zacks Investment Research
Jon is a specialist in the Zacks Method for Trading: Home Study Course. His role is to help investors identify their individual trading goals, and give them the means to make better investment decisions that beat the market.
