Stretch Goals Are Debilitating

People are innately goal seeking machines.  It is intuitive and when we try to manage it, we make mistakes.  Do “stretch goals” work?

The evidence seems to be that they do not and worse they have some very negative side effects.  We would do well to use a different approach.  But, first stretch goals.

In 2012, Daniel Markovitz’s article in Harvard Business Review, The Folly Of Stretch Goals  makes three crucial points

  1. Stretch goals are demotivating
  2. Stretch goals lead to unethical behaviour
  3. Stretch goals lead to excessive risk taking.

None of these tendencies seem appropriate to any plan.

Small wins make a better environment for most people.  Big goals are too complex and difficult to sustain motivation. Stress is not your friend.  Make big into smaller goals spread over the time axis.  Congratulate yourself for each achievement and recognize that short term, small failures are not the end of the plan.

Unethical behaviour happens because stretch goals tend to have a number or time and the various factors that go into making the goal happen are minimized.  Short term reversals lead to lies and cover up.  Shortcuts that have  long-term adverse effect are taken.

Stretch goals lead to risk taking.  Most stretch goals are not thoughtfully conceived.  More often they are for presentation effect.  (like political promises) If the people charged with implementing them fall behind, they may go for the long shot to bail themselves out.  That fails.  All or nothing risk is a unacceptable in a personal plan.

So what to do?

Overcome the poorly conceived goal idea.  Be thoughtful.  Be sure the goal is actually one you care about.  If it is important, define its dimension in time and the assumptions that make it work. $1,000,000 30 years from now with investment at 5% yield means save $15,000 per year.  If $12,000 only is available, then it 33.6 years away.  Or 30.7 years at 6%.  If there is just $7,000 available to save it will still work in 30 years if you get 9.25% on your money.  You can see how taking more risk becomes a factor.

Start out with a clear idea and amend it as you go.  Life is not so linear as we saw above.  Maybe a share of income can work instead of a flat amount to save.  You could start at $7,000 and invest to earn 5% and reach $1,000,000 in 30 years, but you must increase your deposit by 6% each year.

Some people don’t start to save until later.  When debts are paid and children gone, there should be lots of investable money.  A fine theory, but the habit of saving is a good one and many people don’t learn it.

The general defense to stretch goal mayhem is:

  1. Know exactly what you want
  2. Know exactly where you are now in relation to that.
  3. Know a process to move from now to the end point
  4. Know the skills that must be acquired to move forward
  5. Know the impediments to moving forward.  (Mostly people with a different agenda)
  6. Know the time required

Have reasonable, adjustable, reviewed goals and things will tend to work out.  An advisor to keep you on track will help too.  Conscience and cheerleader.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com

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