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Setting and Targeting Investment Goals

How do you set investment goals? Setting investment goals means defining your dreams for the future. When you’re setting goals, it’s best to be as specific as possible. Writing down and prioritizing your investment goals is an important first step toward developing an investment plan.

What is your time horizon? Your investment time horizon is the number of years you have to invest toward a specific goal. Each investment goal you set will have a different time horizon. For example, some of your investment goals will be long term, some will be short term, (and some will be intermediate). Establishing time horizons will help you determine how aggressively you will need to invest to accumulate the amount needed to meet your goals.

How much will you need to invest? Although you can invest a lump sum of cash, many people find that regular, systematic investing is also a great way to build wealth over time. Start by determining how much you will need to set aside monthly or annually to meet each goal. Although you’ll want to invest as much as possible, choose a realistic amount that takes into account your other financial obligations. Dedicating a portion of every raise, bonus, cash gift, or tax refund you receive to your investment objectives is also a good idea.

Which investments should you choose? No matter what your financial goals, you will need to decide how to best allocate your investment dollars. One important consideration is your tolerance for risk. All investments carry some risk, but some carry more than others. Are you willing to accept a higher degree of risk in exchange for the opportunity to earn a higher rate of return? Whether you’re investing for retirement, college, or another financial goal, your overall objective is to maximize returns without taking on more risk than you can bear. But no matter what level of risk you’re comfortable with, make sure to choose investments that are consistent with your goals and time horizon.

Review and revise. Over time, you may need to update your investment plan. No matter what your investment goal, get in the habit of checking up on your portfolio at least once a year, more frequently if the market is particularly volatile or when there have been significant changes in your life. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance.