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After I play in a handball tournament, I always try to do an objective post-mortem. Win or lose, what did I do right and what did I do wrong? Sometimes when I lose, the other guy was just plain better -- probably near professional level and at least 20 years younger! We all need our rationalizations, but we should never forget our main goal. In my game -- handball -- I want to beat my opponent by at least one point and in two out of three games. This is a very clear and highly focused goal.

The goal with investments isn't so clear. What is winning? When the stock market is down for the year, do I win if I break even? When the

S&P 500

is up 27% and I only did 15%, did I lose?

My answers to those questions are that they are the wrong questions and that the answers are irrelevant. Here's why.

The way you take control of your financial life is to have your own personal goals. When you create an investment strategy, you need to get very specific about goals. Hazy goals, such as "I want a million dollars by the time I'm 55," do not work. That will get you sucked into the latest bad investment scheme. If you have no rudder (goal) to steer you, it's easy to jump on the latest hot Internet stock as it burns out to re-enter earth's atmosphere.

Before you can do serious and smart investing, you have to do serious and smart planning. There are six steps:

  • Step 1 is to figure out the things you want in life that require money. Be reasonable and practical. Define periods of time and the amount of money you will need. This includes planning for kids, the kids' education, buying a car, buying a house, weddings, trips, etc. Ultimately, you will have a goal that relates to retiring.
  • Step 2 is to calculate the amount of money needed for each one. Your assumptions may not be accurate, but they will work for planning purposes.
  • Step 3 is to figure out how much money you can save and invest over the various time periods. Obviously, you would include any money you already have.
  • Step 4 is to target use of the money for various things you need, such as the kids' education, a house and retirement.
  • Step 5 is to calculate the difference between what you will have and what you need.
  • Step 6 is to figure out what kind of return you will need on your investments to have the money you require. Determine whether the return you need is realistic. If you require a 20% return per year on your money, you will need to change something because that is an unrealistic assumption for most people.

Here is an example of what I mean: Assume you have 15 years until retirement and you currently have $100,000 invested. After you have done retirement projections, you figure you will need $18,000 of income each year from this money starting in 15 years. Other sources -- pension and

Social Security

-- are providing the rest of your income. The most you want to withdraw from this investment is about 6% a year. At that rate, your investment will probably still grow and be hedged for inflation.

In 15 years, you will need $300,000 in order to provide the $18,000 of income at a 6% withdrawal rate. The key question is what rate of growth is required for $100,000 to grow to $300,000? The answer is slightly more than 7.5% compounded annually. Since it's slightly more, let's round up to 8%. The investment goal for the $100,000 is to achieve a growth rate of 8% a year indefinitely.

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Let's go back to my question at the beginning: What is "winning"? In this case, winning is achieving a growth rate of 8% a year. The benchmark performance for your money is 8%. Every year you make the 8% or more, you win. Any year you make less than 8%, you lose. In today's markets, that's an easy number. But it's not always easy. During the 15-year period from 1966 to 1980, the S&P 500's return averaged only 6.7%. More recently, during the three-year period from 1992 to 1994, the S&P return averaged only 6.6%.

All the benchmarks we talk about -- the S&P, for example -- should not be your benchmark because they are not related to your personal goals. The S&P, the

Dow Jones Industrial Average

, the

Russell 2000

, the

Wilshire 5000

, the various bond indexes and the


mutual-fund-style benchmarks all are important because they tell us what is happening in the market. From this total market, we have to choose investments to achieve the 8% return. The 8% benchmark helps determine risk and the amount you allocate to stocks, bonds and cash. In my language, it helps to put together an effective defense, offense and overall game plan.

Think of the market as a huge reservoir of water from which you need to quench your thirst. You have your own personal spigot that will release what you need to keep you from getting thirsty. You don't need all the returns of all the markets to meet your needs any more than you need all the water in the reservoir to quench your thirst.

Vern Hayden is a certified financial planner with the American Planning Group in Westport, Conn. His column is not a recommendation to buy or sell stocks or to solicit transactions or clients. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. Hayden welcomes your