Understanding investment goals and goals-based investing

Investing is one of the best paths to get you to your financial goals—before and beyond retirement. Goals-based investing tailors your investment strategies to match your personal goals. This approach helps you make informed, effective choices so you can stay on track.

What are investment goals?

Investment goals are financial objectives for the short term, long term, and everything in between. Think dream vacation, college funds, and passing wealth on to your children. When you know exactly what you're working toward, it can be easier to create an effective investment plan.

Thoughtfully creating your future and setting clear goals allows you to make more precise decisions. For example, rather than setting a goal to buy a house, you can create a more specific goal of saving $100,000 for a down payment within 10 years. Specificity also helps you stay focused and celebrate your progress.

What is goals-based investing?

Goals-based investing is a customized approach to managing your investments. Money is personal. Customized strategies help you create the life—not just the portfolio—you want.

Goals-based investing focuses on meeting specific financial objectives rather than just outperforming a benchmark. While a traditional investing strategy may center around an ambiguous goal like "beating the market," goals-based investing is about you and what really makes a difference in your life.

How does goals-based investing work?

The more time you have to meet your goal, the more you can pursue growth. But if you have less time to save, you may want to reduce risk. It all depends on your preferences and risk tolerance.

You can start by setting clear, measurable goals—like buying a new car in one year or paying for your child's education costs in 12 years. Once you establish a time horizon and how much money you'll need to save, you can tailor your investment strategies to meet those specific goals with the appropriate mix of cash, stocks, and bonds. Whatever investment approach you choose should match your willingness and ability to take on risk throughout the time horizon.

By balancing growth potential, stability, and personal risk tolerance, you can meet your goals in a way that feels comfortable for you. So, if your time horizon is 1–3 years or less, you might consider a low-risk portfolio. With a time horizon of 3–10 years, you can diversify with stocks and bonds for moderate risk. Have 10-plus years to meet your goal? You could choose investments that have higher growth potential but carry more near-term risk.

Types of investment goals

Life can come at you fast, so it's important to set milestones along the way and customize your strategies based on your time horizon.

Short-term investing goals

Short-term financial goals are ones you aim to achieve within 1–3 years or less, like building an emergency fund or saving for travel. Placing a greater emphasis on liquidity or stability can give you opportunities to grow your savings without taking on additional risk. Achieving your short-term financial goals while also keeping a close eye on your long-term financial outlook can help prevent setbacks and give you a boost of confidence.

Medium-term investing goals

Medium-term investment goals are set within a 3- to 10-year time frame. This could include saving for a down payment on a house or funding a child's education. To effectively meet these goals, it's important to balance risk and return by choosing investment options that offer moderate growth potential while minimizing the risk of significant losses.

Long-term investing goals

Long-term investment goals are all about planning for the future, typically 10 years or more down the road. That could mean building your retirement fund or setting aside money for your kids or grandkids. To reach these goals, you'll first want to settle on the right asset allocation for your financial situation. Then you might select investment products that tend to generate strong returns over a longer period, but can fluctuate in value from year to year.

Emergency funds

An emergency fund is a short-term goal aimed at building a financial safety net for unexpected expenses, and it's best kept in low-risk, easily accessible investments like high-yield savings accounts, cash management accounts, or money market funds. The key is to ensure that some of your money is liquid and readily available when you need it most.

Buying a home

Buying a home is a medium-term investment goal that typically requires saving for a down payment over a few years. Maintaining a diversified portfolio and using low- and moderate-risk investments, like bonds and CDs, can help you achieve medium-term goals. To balance this priority with other financial goals, consider setting a realistic budget, automating your savings, and regularly reviewing your financial plan.

Starting a family

Preparing for a baby introduces a range of new financial goals, from immediate expenses like diapers and health care to long-term planning for education and future needs. Consider reevaluating your emergency fund and housing needs to give yourself peace of mind for the journey ahead.

College

While you're planning your future, you might also be helping build a little one's. Saving for education is a medium- to long-term goal that requires careful planning. Certain tax-advantaged accounts, such as 529 plans, can help you save even more. Estimating future costs and regularly adjusting your savings plan are crucial to ensuring you have enough to cover tuition and other expenses.

Retirement

When you think of financial goals, retirement might be top of mind. This is an important long-term investment goal that involves saving and investing over many years to help ensure financial security later in life. Starting early is key, as it allows you to maximize the benefits of compounding, which can significantly grow your retirement savings over time.

Leaving a legacy

For many, the ultimate long-term investment goal is leaving a legacy. From estate planning to wealth transfer, this goal focuses on preserving and passing on your assets. Strategic tools like trusts and charitable giving can help you preserve and transfer your wealth in a tax-efficient manner.

How to start investing for your goal

After outlining your investment goals, the next steps include choosing the right type of investment account, such as a retirement account or a taxable brokerage account. Then you can determine your asset allocation to balance risk and return. It's also important to regularly review and adjust your investments to ensure they align with your goals and risk tolerance.

Taking the first step toward saving for your goals is exciting. Whether you're saving up to travel, build a safety net, or start a family, investing can help you get there.

How to overcome investment obstacles

Investing means actively creating your financial future—and it isn't always easy. There are plenty of ways to achieve your financial goals, and plenty of choices that can make it harder to meet your goals. Common pitfalls include procrastinating, unnecessarily withdrawing from retirement or emergency funds, and failing to regularly review and adjust your financial plan.

When faced with uncertainty, it's important to manage your emotions and keep your long-term vision in focus. Writing down your financial goals and game plan for getting there gives you personal ownership. Continually journaling or sharing your goals with others can help you stay on track with clarity, structure, and accountability.

Invest on your own

Some investors choose to work with professionals, and some choose to invest on their own. Self-directed investing may make sense if you have a strong understanding of the market and the time to actively manage your portfolio. It can allow for greater control and flexibility, but it can also mean missing out on financial expertise and a partner to help with some of the time-consuming work.

Get professional investment advice

Investors might seek professional advice if they're short on time, dealing with financial complexity, or just want expertise to help them make the most of their investments. Getting advice can reduce stress by tailoring your investments to your goals and helping keep you on the best path to achieving them.