There are all sorts of reasons why people choose to invest. But having investment goals is a great way to focus the mind on what you want to achieve. Setting smart investing goals should also keep you motivated when saving for the future.
Before you start
When establishing investment goals it’s important to be realistic. Investment goals are important but make sure you’re covered for the essentials and have a decent rainy-day fund. The amount will be personal to you, but two to three month’s spending in an easy access cash account is a good place to start.
Types of investment goals
Then look to the future – what is the investment goal you are aiming towards?
Everyone is different, but types of investment goals include:
- Buying your first home
- A bucket-list holiday
- A wedding/honeymoon
- Your dream retirement
- A holiday or second home
- Children’s (or grandchildren’s) school and university fees
You can put a target value on each of these goals today, but if inflation has its way, that is going to increase over time. Investing your cash could help you beat inflation and achieve your investment goal(s) sooner than you think.
Keep in mind that investing for your future can be a little and often activity – goal-based investing isn’t always about having a lump sum available to invest right away.
Episode 2: Investing goals
Our experts talk about the importance of creating a plan for why you want to invest – whether it’s to help your children through university, pay for a wedding, or go on the holiday of a lifetime.
Listen to our Investing Essentials podcastHow long have you got?
Once you’ve nailed down the ‘what’, the next step in goal-based investing is to think about how long you want to invest for towards your goal.
Whatever your investment goal, keep in mind that you should only be investing for the longer term. For anything short to medium term - perhaps doing up the kitchen or next year’s holiday - it’s a greater risk to invest that cash in case the market dips just as you want to take your money out. You’re usually best-off sticking to savings for any investment goals you want to achieve in less than five years .
Choosing an account
Now you’ve got a handle on your investment goals and a timeline for getting there, you can think about which type of account might fit your needs.
Let’s use an example to put goal-based investing into practice -
Your goal
Your dream retirement
What type of account?
Pensions are designed to help you save for your retirement.
The money you pay in gets boost from tax relief and up to 25% is available as a tax-free lump at retirement. Your employer or business can also save money into your pension. (Annual allowances and limits do apply).
Timeline: How long do you have to invest?
Keep in mind that the generous tax perks of a pension mean that you cannot access your money until you reach age 55. This is rising to 57 in 2028. You can leave it invested for longer if you like and you don’t have to stop working at these ages to access all of some of your money.
How much do you need for your goal and how do you want to save towards it?
You might be happier with saving a smaller amount on a regular basis. Or you might be able to put away a lump sum now or a future bonus? There’s no right answer but keep in mind what you can afford once the essentials are covered and what works best for your goal(s), particularly as investing is for the long term. Remember that although investments like shares and funds have generally outperformed inflation over the long term, they aren’t guaranteed to bring you returns and their value can change quickly over the short term.
Got a different investment goal?
There are also accounts designed to help people getting onto the property ladder as well as stocks and shares ISAs that help people get investing free of tax. There are even accounts that can be managed for children.
AJ Bell’s range of investment accountsImportant information: Remember that the value of investments can change, and you could lose money as well as make it. These articles are for information purposes only and are not a personal recommendation or advice.
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Written by:
Tom Selby
Tom Selby is a multi-award-winning former financial journalist, specialising in pensions and retirement issues. He spent almost six years at a leading adviser trade magazine, initially as Pensions Reporter before becoming Head of News in 2014. Tom joined AJ Bell as Senior Analyst in April 2016. He has a degree in Economics from Newcastle University.
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