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Risk management in trading and investing can be highly challenging. Knowing your budget, how much money to risk, when to risk it, and proper investment practices are all aspects of risk management.
There are many challenges traders and investors face in risk management, which we will discuss below. However, one way to overcome these challenges is to set SMART investing goals for yourself.
Today, we will look at 5 SMART goal examples for risk management, explicitly trading and investing. Following the SMART methodology, setting attainable goals for your investing and trading practices is doable.
What Are SMART Goals?
Before we provide examples of SMART goals for risk management in investing, you need to know the central tenets.
SMART is an acronym that stands for Specific, Measurable, Attainable, Relevant, and Time-Bound.
Each of these factors plays an equally important role in achieving specific ends. So let’s quickly cover what each aspect entails.
If you want to learn more about SMART goals, check out Ultimate Guide to SMART Goals.
Why Are SMART Goals Important for Risk Management?
If you are engaging in proper risk management in trading and investing, there are various challenges you will face.
One of these challenges faced in proper risk management is knowing where to invest your money. In addition, knowing where and how to diversify your holdings is essential to risk management.
Another challenge faced when managing risk is knowing how much of your budget you can allocate to trading. It’s essential to know how much of your trading capital you should invest per trade or into a single asset.
Furthermore, another challenge is researching and analyzing current market conditions to determine which assets to trade and invest in. Finally, you need to know how to interpret the market to properly manage risk.
Education is a big part of risk management, especially trading and investing. There are many risk management techniques, and using them is essential to your success.
Something as simple as knowing how to correctly calculate potential returns and losses is a challenge. Of course, meeting your profit goals is a significant objective. Investing and trading are not easy, but there are ways to overcome these risk management obstacles.
SMART goals enable you to set specific goals and paths to reach those goals. Moreover, SMART goals concern setting relevant, realistic, and attainable goals that are not out of reach. This is particularly the case when time constraints are involved.
5 SMART Goals Examples for Risk Management
Here are 5 SMART goal examples for risk management. Remember that the figures below are purely examples and may not accurately reflect real-life trading practices.
Looking at these examples will give you a good idea of what SMART goals for risk management should entail.
1. Create a Monthly Budget
“My goal is to create a monthly budget for my home and personal expenses. I will engage in various cost-saving measures to reduce my financial burden by at least $250 per month. This $250 will then go toward my monthly investments and trades. My goal is to use at least $3,000 of what I would typically use for entertainment and pleasure per year for investing.”
S: This goal is specific- to save $250 per month or $3,000 per year on items that are not necessary for your survival, and instead invest it.
M: This goal is measurable as you can easily make an expense sheet to see where you can reduce expenditures. It is also easy to track your investments with various applications.
A: This goal is attainable by reducing unnecessary expenses in your current budget.
R: This is relevant to investment risk management because it could be extra income that won’t put you at risk if it is lost.
T: This goal is time-bound, as the aim is to reduce unnecessary purchases by X amount each month.
2. Increase Primary Income
“My goal is to increase my primary income by at least 5% per month within the next 3 months, either by working longer hours or taking more shifts. This additional 5% income per month will be extra or disposable income I can use for investment. I will invest that extra 5% income as I see fit at the end of every month. The end goal for my investing is to attain additional financial resources for investing instead of reducing my expenditures.”
S: This goal is specific – to increase income by at least 5% per month by working more at your job and then investing the additional money.
M: This goal is measurable, as you can easily calculate your current income compared to what you want it to be.
A: This goal is attainable, as a 5% income increase is not huge, and there are always longer hours and more shifts to be worked.
R: This goal is relevant to risk management because it gives you disposable income that doesn’t eat into your budget for necessities.
T: This goal is time-bound, as it refers to increasing primary income within 3 months and then using that income by the end of each month for investing.
3. Decrease Trading Capital
“I will decrease the trading capital I allocate from 5% to 1% per trade. I will do so immediately; following the 1% rule in investing is one of the cornerstones of risk management and responsible investment.”
S: This goal is specific – to reduce the amount of trading capital you invest per trade from 5% to 1% immediately.
M: This goal is measurable, as these are just simple percentages you can easily calculate. If you have $1,000 of trading capital, $10 would be 1%.
A: This goal is attainable because you use less money per trade.
R: This goal is relevant as the 1% rule is standard in investing. This is what risk management is about.
T: This goal is time-bound, as the aim is to make this reduction immediately.
4. Invest in New Assets
“Over the next year, my goal is to invest in two new and different assets per month in the spirit of portfolio diversification. I will focus on stocks, bonds, cryptocurrencies, commodities, and fiat currencies. I currently have invested in 2 assets, and with this plan, after 12 months, I will have 26 different investments across various sectors.”
S: This plan is specific as the aim is to invest in various sectors and asset types, with a certain amount of diversification in 12 months.
M: This goal is easy to measure, as there are many tracking methods for the number of investments you make over time.
A: This goal is attainable and realistic. Instead of putting all of your eggs in one basket, you can diversify those investments, which is not hard.
R: This goal is relevant because diversification is another cornerstone of risk management, like the 1% rule.
T: This goal is time-bound, as the aim is to diversify your portfolio with two new assets every month over 12 months.
5. Increase Trading and Investment Returns
“My goal is to increase trading and investment returns by at least 5% per month, every month, over 12 months, for a 60% monthly profit increase (from initial monthly profits). I will take trading and investing classes (and complete at least one course within the next 3 months), seek outside assistance (such as from professional brokers), and use smart trading and investing practices.”
S: This goal is specific – to increase monthly returns by 5% per month or 60% over 12 months by seeking trading education and other methods.
M: This goal is measurable because you can easily calculate whether or not you reach that 5% monthly profit increase goal.
A: This goal is attainable and realistic, as a 5% increase per month is not hard to achieve given all the methods available.
R: This education goal is relevant, as being a skilled trader with a solid skill set is one of the best risk management techniques.
T: This goal is time-bound in terms of completing trading education, and over the period you aim to increase your monthly profits.
Final Thoughts on SMART Goals for Risk Management
SMART goals provide a clear plan of what you hope to achieve, how you will achieve it, how progress is measured, and when to achieve said goal. It’s a plan of action that covers all the bases. For example, if you’re losing money as an investor, using the SMART goal methodology for risk management can help.
And if you want more SMART goal ideas and examples, be sure to check out these blog posts:
- 5 SMART Goals Examples for Security Officers
- 8 SMART Goals Examples for Building More Confidence
- 7 Examples of SMART Goals for Project Management
Finally, if you want to take your goal-setting efforts to the next level, check out this FREE printable worksheet and a step-by-step process that will help you set effective SMART goals.
