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QuantSchool: Setting investment goals: return, timing, risk

The Foundation of Strategy Planning

Effective investment planning begins with clearly defined goals across three critical dimensions:

1. Return Objectives

Quantifiable Targets

• Annualized return expectations (e.g., 8-12%)
• Absolute return targets for specific periods
• Benchmark-relative performance goals

Realistic Framework

• Equity market long-term averages: 7-10% annual
• Fixed income expectations: 3-5% annual
• Adjust for inflation and taxes

2. Time Horizon

Horizon	Strategy Type	Asset Allocation
Short-Term (0-3 years)	Capital preservation	Cash, short-duration bonds
Medium-Term (3-7 years)	Balanced growth	Stocks/bonds mix
Long-Term (7+ years)	Growth focus	Equity-dominated

3. Risk Parameters

Risk Tolerance Assessment

• Maximum acceptable drawdown (e.g., 15-20%)
• Volatility tolerance (portfolio swings)
• Liquidity requirements

Risk Management Framework

• Position sizing rules (1-2% per trade)
• Portfolio diversification matrix
• Stop-loss protocols

The QuantWave Planning Methodology

• Step 1: Define numerical goals for all three dimensions
• Step 2: Backtest strategy against historical scenarios
• Step 3: Stress-test under extreme market conditions
• Step 4: Establish monitoring and review schedule

Goal-Setting Pitfalls to Avoid

• Overly aggressive return assumptions
• Mismatched time horizons
• Underestimating risk capacity
• Failing to account for liquidity needs

Implementation Checklist

1. Document specific return targets
2. Align investments with time requirements
3. Establish clear risk limits
4. Create performance measurement criteria
5. Schedule regular goal reviews

Clear goal-setting in these three dimensions forms the foundation for all subsequent investment decisions. QuantWave's systematic approach transforms vague aspirations into measurable, achievable objectives with defined risk parameters.