Get started on your goal today
Your goal might seem far away, but it's easy to begin working toward it right now. Just take these 3 steps:
- Decide how much to save for your goal.
- Choose where to invest the money you save.
- Open an account.
Good to know!
Is this the right time to begin saving for your goal? Before you get started, make sure you've done these 3 things first:
- Started saving for retirement.
- Paid down high-interest debt.
- Built up an emergency fund.
2 benefits of investing to meet your goal
What's your plan to reach your goal? You could just add up whatever's left over in your bank account after you pay your bills each month. But putting that money in a separate investment account instead can have major benefits.
It keeps you from buying something else
No matter how much you really want to check this savings goal off your list, it's all too easy to spend the money on something else when it's just sitting in your bank account.
Maybe you think that willpower alone will be enough to keep you on course. If so, that's great! But what if it doesn't?
The best way to ensure that your money goes toward your goal is to move it out of your bank account before you're tempted to spend it. Keeping this money in a separate account also makes it easier to see the progress you're making toward your goal.
It gives you a chance to reach your goal faster
Let's say you want to save for a down payment on your first home. You expect to need about $10,000, and you budget $200 a month toward your goal.
Keeping the money in a bank account typically means you'll earn a pretty low rate of return—0.5%, for example.
At that rate, it will take you a little over 4 years to reach your goal, during which you'll deposit a total of $9,800.
If you instead invest the money in a moderate-risk mutual fund or ETF (exchange-traded fund) and earn an average return of 5%, you could reach your goal 4 months earlier—with total deposits of only $9,000.
By investing, you could reach your goal with less time and money
This hypothetical illustration doesn't reflect any particular investment nor does it account for inflation. There may be other material differences between investment products that must be considered prior to investing.
Have questions about saving for your purchase?
We can help you make a plan and get started.
How long will it take me to save?
That depends on what your goal is, how much you need, and how much you can put away every month.
Can't I just use a credit card?
There are ways around saving for your goal, like using credit cards or borrowing from other savings, but they often come with drawbacks.
How do I know which investments to choose?
The right investments for you depend on how long you have before you plan to use the money—and how comfortable you are taking risk. Answer a few questions and we can give you a recommendation.
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Saving for a goal: The basics
A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.
This chart shows that reaching a $10,000 goal would take you 3 years and 9 months if you saved $200 a month and earned 5% a year. In that time, you'd make total investments of $9,000.
On the other hand, if you saved the same amount but earned only 0.5%, it would take you 4 years and 1 month, and you'd deposit a total of $9,800.
Usually refers to investment risk, which is a measure of how likely it is that you could lose money in an investment. However, there are other types of risk when it comes to investing.
An ETF combines the diversification and professional management of a mutual fund with the trading flexibility and intraday pricing of an individual stock.