While having a full-time job with a substantial paycheck is great, you are still trading your time for money. In order to break your paycheck dependency, you need to develop a strategy that puts your hard earned income to work for you. This article provides the first step in developing your personal investment thesis.

At its core, your investment thesis answers the question “What am I trying to accomplish with my investments and how am I going to do it?” There are an infinite number of goals and ways to accomplish those goals, so it is important to understand exactly what you want so you can thoughtfully select a path that is likely to get you there.

I break the process down into multiple steps. The first step is to clearly define your financial goal.  Your goal gives you a clear financial target that you are trying to reach. This should be a compelling vision of your future. By clearly articulating your objectives, you can efficiently assess whether a given opportunity aligns with your strategic goals, thereby conserving valuable time and resources.

The path you decide to take to meet your goal becomes your Investment Thesis. Your thesis serves as a guiding principle, ensuring that your investments are not merely opportunistic endeavors but rather deliberate steps toward that well-defined financial future. It provides a framework for evaluating investment opportunities.

It is easy to identify someone who does not have a clear Investment Thesis. They will talk about wanting to invest, but they don’t have any idea what they trying to accomplish or why. They ask others for an opinion about whether or not they should invest in a specific deal instead of knowing whether the deal is right for them. In the end, they will either not invest in anything or their portfolio will be a collection of random investments without a cohesive theme. In either case they are unlikely to accomplish what they want.

Define Your Financial Goal

To be clear, “Make money” is not an investment goal.  Goals should be defined in a way that makes it clear whether or not it has been met. When writing your goal, consider the following guidelines:

• Adopt a ten-year horizon: A ten-year timeframe strikes an optimal balance between long-term vision and actionable planning. It allows for the articulation of ambitious goals while maintaining a tangible connection to present-day realities.
• Have a single, overarching financial goal: This provides consistency and enables focus. Use shorter-term, supporting goals to fill in the details and provide more concrete, actionable steps.
• Make the goal specific, measurable, and time bound: This eliminates any ambiguity around whether or not the goal is met. It should include any relevant information that is important to defining your successful completion of the goal.
• Written in the present tense using positive framing: This helps your subconscious accept the goal. Do not use words such as “not” and do not use the future tense.
• Maintain Realistic Expectations: Ensure that your goals are grounded in realistic assessments of your capabilities and market conditions. You don’t want to set goals that are impossible to meet, you don’t believe will occur, or will cause you to take undue risk.

Setting your financial goal is a personal activity. While there is no wrong goal, it is important that it reflect what you want to accomplish as this is going to be the target you are trying to hit with your investments. This vision of your future should be compelling to you, something that you are willing to strive for and believe in. It shouldn’t be just a dream or a wish – it needs to be something that you believe you can accomplish. It should be inspirational enough that it will help pull you through the challenges that will inevitably occur.  

To illustrate these principles, consider the following hypothetical scenarios:

Ron is a young, aspiring entrepreneur:

In 10 years, I have a net worth of $300,000. I own my own home outright. I own and work 30 hours a week in a small construction business that develops 6 houses per year. I have a 4-plex that generates $1,000/month in income. I have an emergency fund of $50,000 that will cover all of my expenses for a year.

Kay is a career focused young woman:

In 10 years, I have $250,000 in my retirement account spread across 3 index funds and own the house that I live in. I tuned my old home into a single family rental property generating $200/month in positive cash flow. I have personal savings and brokerage accounts with $100,000 in them. My total net worth is over $500,000. I am working full time in a career I love.

James is looking towards retirement:

In 10 years, my total net worth is over $5,000,000 split equally between the stock market and real estate. My real estate portfolio is focused exclusively on passive investments, which do not require me to actively manage properties. They bring in $150,000 per year in cash flow. I have over $500,000 in liquid assets spread across brokerage and savings accounts. I own my house and do not have a mortgage on it. I also own a second home near the beach where I spend 3 months of the year. I do not need to work and can comfortably live off of my investments.

Start Where You Are

In order to set a realistic goal, you need to understand where you currently are and where you are going. Consider the following questions:

• What do I currently have to invest?
• What additional resources can I generate?

Your current investments and savings are the obvious starting point. However, you should also include your current knowledge, skills, and abilities. These are resources that you can use to increase your investments in the future. Don’t forget your paycheck, which can be used to provide additional capital for investment over time. 

By looking an honest look at where you currently are, you can determine what you have to work with as you build your thesis. Don’t worry if you feel like you are not where you “should” be. The purpose here is not to compare yourself to others or to get depressed about decisions made in the past. It is simply to understand what resources you have and how you can apply them going forward.

Before setting their goals, our 3 subjects took a look at their current situations.

Ron is working full time as an electrician for a local developer. The pay covers his expenses, the work isn’t overly taxing, and he has his weekends free. He plans to partner with his buddies to build houses over the weekends and then flip them. He believes he can generate an extra $20,000 per year after expenses for the next 3 years to create a nest egg that will allow him to leave his current job and focus on building his own business.

Kay only has $1,000 in savings and $50,000 in student debt. However, she just graduated as a nurse and has started her new job. She now brings in $25,000/yr above her current expenses. Assuming she kept working and her expenses and income rise together, if all she did over the next decade was to save her extra income instead of spending it, she would be almost half way to her goal of a $500,000 net worth.

James has a current net worth of $2M and has been working in the tech field for the past 15 years. He currently makes $150,000/yr above his expenses. He has $1M in his retirement account, split between stocks and bonds, $500,000 in equity in his primary residence, and $500,000 in self storage deals where he is a passive investor. Assuming his salary and expenses increase at the same rate, he is also half way to reaching his goal just based on his projected savings. 

Your financial goals are not immutable decrees. They should evolve in response to changes in your circumstances and priorities. The development of clear goals is a dynamic process of self-discovery and strategic refinement. However, as this becomes the target you will use to evaluate what opportunities to invest in. It is worth investing effort into being clear about what you want. By selecting a goal that resonates with you, you are more likely to be making small refinements over time instead of significant shifts.

This article is my opinion only, it is not legal, tax, or financial advice. Always do your own research and due diligence. Always consult your lawyer for legal advice, CPA for tax advice, and financial advisor for financial advice.