Most people have some idea of what they would like their life to look like in retirement. In order to create that lifestyle, you’ll need to set some investing goals to ensure that you have enough money to do the things you want to do when you’re finally out of the workforce for good. Retirement isn’t the only reason to invest either. You may have other things in mind that will require significant amounts of money, so you should have long-term investing goals in mind for those plans too.
Walter Schloss isn’t a name many investors will have heard today. Schloss was one of the great value investors who trained under Benjamin Graham and specialized in finding cheap stocks. His track record was outstanding. In Warren Buffett’s 1984 essay, the Super Investors of Graham-and-Doddsville, he noted that between 1956 and 1984, Schloss’s firm returned Read More
Why Do You Want To Invest?
The first step in setting investing goals is to determine what you want to save money for. It may help to divide your plans up into different time horizons. You should look at things in three different windows: short-term, medium-term and long-term.
Short-term investing goals shouldn't be plans for the next year or two. It takes a while for investments to pay off, so when we say short-term goals, we really mean five to 10 years out. Medium-term goals can be 10 to 20 years out, and long-term goals should be 20+ years away.
Part of setting these goals should be writing them down. Keep in mind that all goals should be SMART, or specific, measurable, achievable, relevant and time-based. Essentially, you must have something you want to achieve in a set amount of time, and it must be something that's realistic.
When it comes to setting investing goals, it's a good idea to decide how much money you want to put toward a particular goal and then figure out how much you must save in order to have that much set aside by the time the deadline rolls around. Once you have these basic factors in place, you can go about looking at ways to meet your investing goals in each timeframe.
Short-Term Investing Goals
Some examples of short-term goals might be saving to buy a house or a second property if you already own a home. Other short-term goals may include buying a vehicle like your dream car or a boat. Depending on how old your children are, you may want to start saving for their college tuition.
The best plan when it comes to short-term investing goals is to focus on fixed income investments like bonds, which are less volatile than other types of assets. You don't want to take a lot of risk with your short-term investing goals because you will need the money sooner than you need the money for your other goals. There isn't as much time to make it back if you lose it, so you need low-risk investments.
Some other options that fall into the fixed income investment category included fixed income exchange-traded funds like SPDR Fixed Income ETFs and iShares Bond ETFs. The most common types of fixed income investments are corporate and government bonds, which pay a set amount on a regular basis and then repay the principal amount of the bond at the end of the term.
Medium-Term Investing Goals
When you start looking at the medium term, you can take on more risk with the goal of making a bigger return, but not everyone is comfortable with the same levels of risk. When you're setting investing goals, knowing your risk tolerance is an important part of the formula. Some people would rather have a lower return in exchange for not having to see their portfolio take a dive when the markets crash.
If you are comfortable with risk, then the money you invest for your medium-term goals should be more conservative than your long-term invested funds but a bit riskier than your short-term invested funds. You should also keep in mind the current state of the market when deciding where to invest your medium-term funds.
Since you're looking more than 10 years away from your goal, you may want to invest some of your medium-term funds into stocks and some into bonds. It's best to strike a good balance between risk and safety so you have the opportunity to earn more on your investments, but you don't risk losing everything. Mutual funds can also be a great addition to investing goals with a medium-term focus.
Long-Term Investing Goals
Looking further out, you may have goals like retirement if you're still in your early working years. If you're already close to the finish line, you may not have many long-term investing goals to work on.
It's important to remember that you're able to take on a bit more risk with the money you're saving for your long-term investing goals. With more risk comes greater opportunities for reward, but not everyone is comfortable with significant risk. As a result, you should think about your own comfort level when deciding how much risk to take on.
Like your medium-term investing goals, saving for long-term goals should be a mix of stocks, bonds and other assets. Stocks can take up a larger chunk of the portfolio since you have time to make up any money lost on fluctuations in the stock market.
Whatever your goals are, it isn't a bad idea to have a financial advisor help you figure out how much money you need to save and what is a realistic amount for you to save by when. A financial advisor can also help you figure out the best mix for your investments as you save for each of your goals.
If you can't afford a financial advisor right now, you might want to make that one of your short-term goals. They can help you maximize your savings through investing for the medium to long term.