How to set better money goals in 2023

Something I just learned that blew me away:

45% of Americans make New Year’s resolutions. (12% more than watch the Super Bowl!)

Only 8% of those people actually complete any of those goals. (These numbers come from the University of Scranton and their resolution research in the prestigious Journal of Clinical Psychology).

What’s the lesson here?

My first instinct: “People are really bad at meeting goals.”

But, on second thought: “People could be a lot better at setting goals.”

We’re two weeks into the new year. (Happy 2023 by the way!) If you’re among the (roughly) half of folks who set resolutions, and you’re starting to fear all those goals are doomed, I’m here to help.

The key to meeting your money goals is setting your expectations correctly. Here’s how to get started.

Even top-level investors are bad at setting goals

I’ve worked with (ballpark) a couple thousand investors over the years, from independent folks managing their own portfolios, all the way up to hedge funds managing millions.

Almost all of them are bad at setting goals.

Which is to say, you’re not alone. The big fish struggle with this, too.

There’s a growing body of work that shows that goal-setting done the wrong way, especially stretch goals, may be counter-productive (see, for example, “Goals Gone Wild” by Ordonez, et al, a 2009 report from the Harvard Business School).

Goal setting is not a cure-all. And in investing, it can be downright harmful if done poorly.

A new goal-setting method

Any goal-setting money strategy should aim to reduce anxiety and allow you to learn the art and science of investing in a low-stress way.

This is the one that I’ve developed, and has served me well for years.

Before anything else: 🚨 Make written goals! 🚨

If you don’t have investing goals, chances are high that you’re setting yourself up for failure. But if you do, and those goals aren’t written down (and reviewed regularly), then it’s almost as ineffective as not making them at all. You’re massively lowering your probability of achieving them.

Now, onto the goals themselves.

There are two ways to think about it:

The “results-oriented” camp

On this side of the tracks, all goals must be attached to tangible and measurable results. These goals are the favorites of management-types. They are also strongly emphasized among athletes who compete at a high level.

Example: “I want to make 13% on my portfolio this year and make at least $200/month on dividends.”

The “process-oriented” camp

Process-oriented goals emphasize the “how”. What are the things you will do to get to your end results. The adherents of this camp believe that you should focus more (or even exclusively) on the activities required to achieve a certain result rather than on the result itself.

Example: “I want to hold my investments for about a year, with a focus on mutual funds, in a moderately low-risk portfolio.”

These aren’t mutually exclusive approaches, and in fact, I’m going to advocate for a mix of both. More on that in a minute. Let’s look at a couple scenarios to see them in action.

Build a process you can trust

Consider an infant learning to walk. It’s a process of constant trial and error. Encouragement from loved ones. And patience.

How would you frame a goal for that situation, if you’re parent?

You wouldn’t set a hard-and-fast deadline. The time frame is always going to be “as long as it takes.”

My son Josh was a “late” walker. He didn’t take his first unaided step until he was 15 months old. We were actually beginning to wonder if we had overlooked a developmental issue with him. But in a move that was quite unusual, when he finally let go of the furniture and took his first step, he didn’t stop! Most infants take a step or two or three and then flop down. Josh just kept going. He ended up taking 13 steps the very first time that he took off!  I guess he was just ready.

When we are helping a child learn to walk, we focus on the process. Placing one foot in front of the other while maintaining balance. Taking steps that are not too big. Stepping on the ball and heel instead of the outside of the foot.

If you’re training an athlete, the strategy changes: you trust and rely on the process, and layer performance goals on top.

The same logic applies to driving a car. You want a new driver to go a short distance without having or causing accidents. And you want them to be able to do that consistently. You don’t care if it takes ten minutes to get to the store instead of five. You just want them to operate the vehicle safely.

A NASCAR drive relies on the exact same process, but builds in performance goals.

Investing is a learning experience as well. And while there is no one “right way” to set goals for everyone, there are some practical guidelines that can help investors at all steps along their journey to mastery.

Process-oriented goal and results-oriented goals both have their useful place for investors.

The wrong admixture of the two, however, can gum up your works. If a new investor expects a minimum of 20% returns each and every year, no matter what, it’s only a matter of time before they make some destructive decisions, like chasing the most volatile stocks or taking on individual positions that are way too large, just in an effort to hit a results goal that was probably ill-advised from the start.

In a future article we’ll dig in and find out what a proper balance between these two goal-setting camps is right for you and your current situation.

Great investing and God bless you,

D.R. Barton