Setting investment goals

Having clear investment goals can motivate you to get started and help you choose the right investments to achieve those goals.

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Putting money aside to invest can often mean making short-term financial sacrifices – choosing not to buy a new outfit or a slap-up meal out, for example. Making such sacrifices is likely to leave less of a bitter taste if you have a clear picture of what you’ll achieve by doing so. So if you’re thinking of getting started with investing or of ramping up your efforts, first take a moment to set yourself some investment goals.

What are investment goals?

An investment goal is a reason to invest. As a general rule, we invest money in the expectation that it will grow. But very few people’s end goal will simply be the joy of seeing a bigger figure when they check their investment account.

Most people will instead have a specific reason (or reasons) that they want their money to grow. This might be, for example, to build a deposit to buy a house, to fund a child’s university tuition or even to provide enough to live on in retirement.

How do I decide what my investment goals should be?

Your personal investment goals will typically depend on your life stage, your financial situation, your personal circumstances – such as your relationship, family and employment status – and your aspirations for the future.

Obviously, you can’t invest what you don’t have. If you don’t have much money left at the end of the month after bills, debt repayments and other outgoings, a higher priority might be to set money aside in accessible cash savings in case of an emergency.

Speaking of cash savings, investment goals should never be short term. As a rule of thumb, it’s recommended to keep money invested for at least 5 years. That’s to allow your investments enough time to ride out any market volatility and leave you with more money than you started with. Invest for less time, and there’s a greater risk of you making an overall loss. So if your goal is a globetrotting holiday in just a couple of years, you may be better off putting your money into the highest-interest cash savings account you can find.

Medium- to long-term investment goals

Bearing in mind that investment goals should be medium to long term, it could help to make a list of all the potential big things you may need to save for over your lifetime. Next to each item on the list, jot down the likely timescales for when you’ll need the money.

Perhaps, for example, you and your partner are hoping to buy your first home in 5 years. Or maybe you’ve just had a baby and are thinking ahead to the cost of their university tuition fees in 18 years.

If you’re self-employed, you may want to start saving towards retirement by investing in a personal pension. The time frame for this could be 30 or 40 years.

The timescale for each goal will affect how much risk it’s appropriate to take when investing. If you have more than one investment goal, you may choose to set up separate investment accounts for each.

What makes a good investment goal?

Deciding what you’re investing for is only the start of setting investment goals. If you’ve ever had to set workplace objectives, you’ve probably come across the term “SMART”. In case you need a refresher, it stands for specific, measurable, achievable, relevant and time-bound.

As with workplace objectives, investment goals should hit these criteria. Let’s break them down into what they mean for investments.

Setting SMART investment goals

  • Specific. Be clear about what you want to save for and how much you will need. So, for example, I want to have £15,000 to pay for my wedding and a honeymoon on safari.
  • Measurable. Financial goals are typically easy to measure progress against, as you can regularly assess how much money you’ve saved as a proportion of the goal.
  • Achievable. If you want to have £15,000 towards your wedding and honeymoon in 5 years, but you can only invest £1,500 per year, then sadly you’re unlikely to hit your mark even with strong investment growth. Most investors would regard 10% as an excellent investment return, but even this would only leave you with around £10,075 after 5 years. To be realistic, you’d need to increase your timescale or lower your expectations.
  • Relevant. Ensure that each of your investment goals aligns with your overall life plans and values.
  • Time-bound. Some investment timescales will be pre-determined – a child going to university, for example. Others can be more flexible. However, even with flexible goals, it helps to have a clear end date in mind to create some sense of urgency and give you something to clearly measure progress against. As highlighted under “achievable”, make sure the timescale you set is realistic.

Do I need an investment goal?

That depends on how you define “need”. It’s possible to start investing without clear investment goals, but this approach carries several risks:

  1. Starting too late – or not at all. If you haven’t thought about what you want to achieve, and what’s needed to achieve it, it could be all too easy to put the hassle off until tomorrow. And tomorrow. And tomorrow. And by the time you need the money, it could be too late.
  2. Not investing enough. Let’s take the example of getting married above. If you don’t set a smart investment goal with a clear (and realistic) budget and timescale, you may not end up with enough money for the Big Day you and your partner want.
  3. Choosing the wrong investment strategy. You might, for example, put your money in lower-risk, lower-return investments when your timescale means that you can afford to take more risk – or vice versa.

What are the advantages of having an investment goal?

Having clear investment goals can motivate you to get started with investing and to maintain the financial commitment required to succeed in meeting your life goals. One thing that pretty much every investment expert agrees on: while it’s never too late to invest, the sooner you start investing towards a goal, the better off you’ll be in the end.

Plus, by measuring progress along the way, you’ll be able to feel that sense of self-satisfied smugness that comes with getting ever closer to achieving your goals.

Are there any disadvantages to setting an investment goal?

Provided your investment goals are SMART, there are unlikely to be many disadvantages.

The main one that might arise is if unforeseen events knock you wildly off course. For example, while staying invested for the long term will usually be enough for you to ride out any market volatility, a major crash just before you need your funds could be painful. Of course, in reality, you wouldn’t have lost any more than if you’d invested the same amount without having set an investment goal. But a failure to achieve the goals you’ve worked towards could be demotivating.

That said, the motivational benefits of setting investment goals are likely to outweigh this downside more often than not.

What is important, though, is to set goals that are realistic and that you can commit to. If you set yourself goals that are virtually impossible to meet, there’s a high risk of disappointment and stress.

How can I make sure my investment goals are realistic?

As well as making sure your investment goals meet the SMART criteria we’ve outlined above, there are a few specific things you can do.

  • Calculate how much you can genuinely afford to save. Be honest with yourself about your monthly outgoings, and how much you’ll have left to invest. Make sure you put enough away to pay for any emergencies into an accessible cash savings account before you start investing.
  • Don’t assume astronomic returns. Many experts bandy about figures about how much better the returns are from investing than from cash savings. But while that is usually true over the long term, it’s not guaranteed. Plus, to get the highest returns also means taking on the highest risk of loss.
  • Allow for things to go off-piste. The best-laid plans can go awry, especially if life throws you a curve ball. If you lose your job or become ill, you may struggle to maintain regular contributions to your investment account for a while. If possible, allow for a bit of wiggle room in your investment goals to allow for this.
  • Choose the right investment approach to suit your goal. The longer the time before you need the funds, the greater the investment risk you can afford to take. This will affect the balance of assets you want in your investment portfolio. Even if you’re investing for a longer time frame, you may want to move your money into lower-risk investments as you approach the point you’ll need the funds. This is a strategy often applied to pension funds as it minimises the risk of high market volatility decimating your investments late in the day.
  • Consider help from an adviser. If the prospect of working out SMART investment goals seems daunting, or just too much hassle, a regulated financial adviser may be able to help. You’ll need to pay for this advice. But it’s an adviser’s job to take into account your full circumstances and recommend the best options, so you could end up better off than going it alone. Plus, if they give you unsuitable advice, you’ll be able to complain and seek compensation.

How can I keep track of progress against my investment goals?

The simplest way to measure progress against your goals is to use an online tool or app that lets you put in the current value of your investments, your goal, your deadline and how much you’re saving. Your progress may be shown as a graph or as a percentage of the goal achieved, for example.

If you’re using an online investment platform or app, it’s easy to check the value of your accounts at regular intervals. Many will also offer tools that let you track progress against a goal.

Don’t be obsessive about checking though. The stock market fluctuates constantly, and checking daily (or even weekly) will almost certainly mean you see your investments go down in value sometimes. This is normal, and the reason that you should stay invested for a good 5 years. Over this period, or longer, market growth should outweigh any downturns.

What if I’m not progressing as fast as I want?

Zoe Stabler

Finder expert Zoe Stabler answers

If you don’t feel you’re making enough progress towards your goal, the first step is to work out the reason for this. Ask yourself some probing questions:

  • Are you contributing as much as you planned to? If not, then you may need to up your contributions, adjust your deadline (if possible) or identify alternative ways to fund the shortfall.
  • Are you worrying unduly because of a short-term market downturn? If you’ve been contributing as much as planned, and you’ve worked out that this should be enough to meet your goals, then don’t panic because of a blip. However, if things don’t look like they’re recovering over the next few months, you may need to take further action.
  • Is it worth reviewing your strategy? If the poor progress isn’t down to a blip or a shortfall in contributions, then consider changing your investment strategy. If you’ve erred on the side of lower-risk investments and have a long period left before you need the money, for example, you may decide to add some higher-risk (and potentially higher-reward) assets to your portfolio. This probably won’t be a viable option if you’ll need the money within a few years, though.

If none of the questions above addresses your concerns, then ask yourself whether your original aspiration is still realistic. Or was it realistic in the first place? If not, and increasing your contributions, extending your deadline or finding alternative sources of funding aren’t possible, you may sadly need to reduce your end expectations. Coming back to the example of getting married from earlier. Would you be able to bear going on a less high-end honeymoon? While this may feel like a harsh decision to have to make, it’s better to make it sooner than later.

Bottom line

Getting started with investing can seem daunting, but arming yourself with a clear purpose should help inspire you. Make sure your goals are SMART to help you stay on track and make sure they’re realistic. The sooner you get started, the smaller you can start. Regular, small amounts squirrelled away early in life could grow into substantial nest eggs by the time you need them to deliver results.

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