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To Invest Better, Set Specific Goals and Follow Through

By U.S. News & World Report

Here is one thing about being human: we perform better when we set out to achieve goals. The more specific the goals, the better our performance. That is the basic premise of Edwin A. Locke’s goal-setting theory, backed up by decades of pioneering research on motivation and performance in education and the workplace.

The principles of goal-setting theory have redefined the way businesses operate, affecting how most of us do our jobs. If you have a manager at work, chances are you have a periodic performance review. Meeting your goals for the period can advance your career and earn you a salary bump, while failure to do so can, in the worst case, cost you your job and paycheck. That alone is motivation to work hard, though again, setting the right, specific goals should motivate you even more.

Become a better investor with goal-based investing. So what happens when you apply the principles of goal-setting theory to investing? The answer you probably want to see is: “Your investments perform better.” That, of course, is not necessarily the case. A properly diversified portfolio might weather a market downturn better than one managed by an avid trader attempting to time market trends, but chances are that in a market downturn, your investments could take a dip, as well.

When you begin investing with goals in mind, you will likely behave better as an investor. Part of this is having a personalized, goal-specific measure for performance: rather than pegging your portfolio to an arbitrary benchmark, such as the Standard & Poor’s 500 index, you can measure how well your investments are doing by whether or not you are on track to achieve specific goals. Is your retirement portfolio underperforming the S&P 500 because a portion of it is invested in bonds? That doesn’t matter, as long as your nest egg’s growth is on track to add up to the total amount you have determined you need in order to retire.

Setting goals and managing investment accounts pegged to each goal separately will likely protect you from your human self and the inclination to react emotionally — not necessarily appropriately — to market events. It might, for example, help you stay on course rather than panic and sell out if the market drops and your shorter-term savings are invested in the markets, says Aaron Gubin, head of research and wealth management at San Francisco investment management firm SigFig.

Set specific goals. The key to applying goal-setting theory to investing isn’t very different from how it is successfully applied in the workplace. Your investing goals should be specific and meaningful to you and how you envision your future.

Do you see yourself as a homeowner sometime over the next five years, perhaps — or is buying a house on your immediate roadmap, something you are set on accomplishing in the next year? How you answer that question will determine how you invest your down payment savings: more aggressively if you have a longer-term horizon, more conservatively if you don’t.

Is paying for your children’s college education so they don’t have to borrow student loans more important to you than living in a larger home? Then you will likely contribute to a 529 plan before you begin setting aside funds towards a larger house down payment.

Choose the right investment strategy. Once you have your goal roadmap — your short-, medium- and long-term goals — written out, it’s time to select the optimal investment mix. Based on the time horizon for each goal, Gubin offers the following general guidelines:

— Super-short term (six months to a year). Keep the money in an FDIC-insured checking or savings account.

— Short term (1-3 years). Go with CDs or a short- and middle-term investment-grade fixed income portfolio, which will protect your principal while hopefully offsetting inflation. For diversification, consider adding a hint of equity, but no more than 5 percent to 10 percent of the account.

— Medium term (3-10 years). A blend primarily composed of investment-grade fixed income and some equity. This way, you get quality returns and risk management through asset class diversification.

— Long term (10 years and more). A balanced portfolio made up of 60 percent equities and 40 percent bonds. Adjust for risk, if necessary. (SigFig’s risk questionnaire can help you determine an allocation based on your risk appetite and time horizon, among other factors.) Dial down the risk as your goal approaches; consider each time period we mention above as your time horizon changes.

Retirement planning. It is worth noting that retirement planning is different than managing purchase-specific savings. While a 60/40 ratio of equities to bonds in your portfolio makes sense when you have a defined target date, that is not always the case with retirement: you could work longer if you do not hit your goal, for example; or shift your goal if you choose to work longer or retire earlier. A typical retirement glidepath might put you at a 60/40 ratio right when you retire. After all, expectations are that you will live off your portfolio for three or more decades — at which point your goals will adjust accordingly.

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To Invest Better, Set Specific Goals and Follow Through originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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