setting stock goals

[darkangelism]

One important aspect of investing is setting goals, though these usually are flexible having some endpoint in mind makes it easier to see progress.

The first goal should be answering the question "How long do I want my money to be tied up in the stock?"

I would break this up into five time frame catagories

Very short term, with a goal of less then three months between buy and sell.

These would be stocks in companies that have good news, product releases or maybe a seasonal boost, retail does well near the holidays for example.

Less then a year, stocks that may be held for more then three months but still less then a year.

These would be companies that may be having high growth or favorable business conditions.

Note: In the US any stocks held less then a year are taxed at income tax rate and anything held over a year is currently taxed at 15% max so it may be benefical to not trade quickly depending on your income.

One to five years, these would be stocks that are showing potential for growth but may take some time to develop or stocks that are needing change, an example would be Mcdonalds from 2002-2007, it had been beaten down by mad cow disease and over expansion but was never in risk of going out of business it went from a bottom of $13 to about $60 in that 5 year period.

Five to ten years, stocks that have a fairly long term growth possibly newer companies that still need to develop.

Ten years and up, these would be companies that are growing over the long term, or are being held for dividends.

It is best to have some stocks in all those catagories with more emphasis on the catagories that benefit your goals the best.

The next goal that should be set is the monetary goal, answering the question "How much do I hope to make?" This should tie in with the first goal on how much time do i want to make it in. This goal helps eliminate stocks that have no chance of reaching the goal even if they are good companies.

Right now you probably have a savings account, which basically pays next to nothing, mine is paying me 0.35% or 35 cents per hundred dollars per year. So at the very least the goal for stocks should be earn more then that, and that should be pretty easy.

The next level of goal should be to earn more then what a CD or bonds can make you, these pay somewhere between 3-10% per year, so even these stocks are not hard to find.

After that it starts to get harder. I would say the next goal would be beat the stock indexes which is 11-13% a year historically, but can be much higher in good times or lower in bad.

Beyond that its more high growth, and much harder to pin down a specific percentage. The two ways I try and reach high growth rate is either through stocks that I except a large increase over a long time, or am unsure when it will increase rapidly, so I buy and sit and wait for it to go up. The other way is to make a lot of short term trades, by buying a stock then letting it go up 10-20% in a month selling then buying another with the same expectation, this way i end up with 120-240% growth a year but not expecting a single stock to grow that fast.

Once you have your goals set you can start looking for stocks that can reach those goals.