How To Set Your Investment Goals

There are likely many things you want to do in life: buy a house, pay off your student loans, go on exciting vacations, buy your dream car, and of course, save for retirement.

It can be hard to know how to prioritize all these goals. 

Can you still save for the experiences and things you want in the near future, while also investing for the far future?

Spoiler: Yes! It is possible, with a bit of smart planning and tracking.

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How To Choose Your Investment Goals 

Goals are very personal. Not everyone wants the same thing in life or even starts at the same starting point. Some people might want to travel as much as possible, while others prefer to build their dream home. 

But before choosing any investment goals, you’ll want to first assess your current financial situation. 

Spend some time tracking your spending so you can see where your money goes. If you have any savings or investments, note how much money is in there.

From there, you can then determine what goals are top priority. Maybe you don’t have any savings at all. In that case, setting up an emergency fund is a good first goal. 

Or maybe you want to start a family but need a bigger home first. Then saving for a down payment may be your goal.   

Only you can know what goals are most important to you, however, there are at least two financial targets that everyone should aim for:

• An emergency fund of at least three months of expenses
• A retirement fund that’s on track to meet how much you’ll realistically need in retirement

Now, these are vague goals, and it’s better to be specific with your goals. One method many people use when setting goals is the SMART strategy. SMART stands for:

• Specific
• Measurable
• Achievable
• Relevant
• Time-bound

When you’re setting your goals, looking at them through the SMART lens helps you to be more specific about what you want.

For example, instead of having a goal to “retire early,” you can create a goal to “retire by age 55 with $1.2 million invested.”

Why are financial goals important?

A 2022 Planning and Progress Study by Northwestern Mutual showed that 54% of Americans feel somewhat or very anxious about their finances. 

But setting goals can alleviate that financial anxiety because goals give you purpose and direction. They help you prioritize what’s important so you can stay focused.

READ MORE: How Much Can I Afford to Invest?

How To Invest for Your Goals

Once you know your goals, you need to determine how long you have to reach them.

Different goals have different timelines. Generally, we divide investing goals into short-term, medium-term, and long-term — all of which will vary depending on your age and life circumstances. 

For example, retirement would be long-term for someone in their 20s, but short-term for someone in their mid-60s. Or paying for a wedding would be short-term for someone who’s getting married next year, while it might be medium-term for someone who is newly dating their partner.

Here are some common examples of investment goals with different time frames — along with guidance on how to invest for each.

Short-Term Investing Goals

If you have a goal that you want to complete in less than five years, then that would be a short-term investing goal.

With these goals, your money needs to be liquid (meaning you can access it quickly and easily when you need it). As such, you don't want to lock your money up in investments that have withdrawal penalties.

You also want to avoid high-risk investments that could be subject to short-term market fluctuations. If the market goes down, you won't have enough time to recover and meet your goal target.

A high-yield savings account is the most common place to put a short-term goal. You could also consider short-term certificates of deposit (CDs) that are eligible for withdrawal in a few months or years.

Example 1: Build an emergency fund 

The 2023 Nerdwallet Consumer Savings Report showed that only 45% of Americans could cover a $1,000 emergency expense. That’s why having an emergency fund is an important first financial goal.

Ideally, your emergency fund should have three to six months of expenses in it. This can help you should you have an unexpected problem, like a major health issue.

The only place you want to put your emergency fund is in a high-yield savings account. Even a short-term CD is too risky — if you can't access your money immediately, it's not going to help you in an emergency.

Example 2: Save for an upcoming large expenses

Examples of short-term large expenses could be buying a new car, taking a family vacation, or renovating your backyard or bathroom.

While you can borrow money through a loan or line of credit to do these things, you want to be careful with borrowing more than you can afford. By saving up for an expense (or most of it) first, you can be sure that you can cover the full costs without putting yourself into debt. 

Again, a high-yield savings account is a good option here, although you could also consider a short-term CD or money market account since you'll know well in advance when you want to withdraw the money.

READ MORE: Money Market vs. Savings: Which Account Is Best for You?

Medium-Term Investing Goals

These are goals that are longer than five years away, but less than 10 years. 

With these goals, you can keep your money locked up longer than with short-term goals, and you can consider a moderate risk level in any investments. 

For example, CDs, money market accounts, and bonds are good low-risk options for saving for medium-term goals. Or for a bit more risk, you could opt for high-quality exchange-traded funds (ETFs).

Example 1: Save for kids’ college expenses

Depending on the age of your children, saving for college could be a medium or a long-term goal. You might even be saving for your own education if you want to return to school. 

There are specific tax-advantaged accounts designed to pay for education expenses, such as a Coverdell Educational Savings Account (ESA) or a 529 plan.

Example 3: Create an estate plan

Once you start to build wealth and you have dependents relying on you, it becomes more important than ever to create an estate plan. 

An estate lawyer can help you plan to transfer wealth in the future in the most tax-efficient way. 

It’s also a good idea to have a will and a life insurance policy if you don’t have one already. 

While these might not seem like investing goals, they are because you’re investing in your family’s security by having a plan in place.

Long-Term Investing Goals

Long-term investing is for goals that are more than 10 years in the future. 

When you’re investing for these goals, you can usually take on more risk, since you have more time to recover any losses if the market goes down. Stocks, mutual funds, and index funds are all assets you may want to consider for long-term investing.

However, remember that as you age, goals that were once long-term, like retiring, will shift into medium- or even short-term.

Example 1: Retire on track

For retirement, invest in accounts such as a 401(k) and a traditional or Roth IRA. 

In both cases, you can choose how risky you want to be with your portfolio. The more risk, the more potential for gain (within reason — you don’t want to throw your whole portfolio into stocks for fly-by-night startups!).

To determine if you’re on track, calculate how much you think you’ll need in retirement. Then calculate how much your current investments are tracking to earn.

If you’re falling short, you’ll need to adjust how much you’re putting into them to catch up and meet your goal.

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Example 2: Save for health or long-term care

Healthcare is expensive. And as we get older, we unfortunately need it more and more.

While you may have healthcare benefits with your employer while you’re working, that might not be the case after you retire. 

As such, many people plan to have enough saved for future health issues or long-term care.

The Health Savings Account (HSA) is a popular option for this because it comes with specific tax advantages.

How to Monitor Your Goals

Not all goals require the same amount of monitoring. For example, you should probably monitor your progress on your short-term financial goals every week, but you can review your medium-term goals quarterly and your long-term goals annually. 

You can use a simple spreadsheet or a tool like Empower to track your budget, spending, and net worth.

READ MORE: Empower Review: Paid vs. Free Financial Tools

Many people also benefit from having an accountability partner, whether it's your spouse or a close friend. Having someone check in on your goals and support you is a good way to stay the course.

Or, depending on your level of discipline, automating your savings and investments can help you meet your goals on auto-pilot. 

For example, the investing app Webull comes with a “Smart Advisor” feature that automatically rebalances your portfolio as needed to meet your goals.

READ MORE: Webull Review: How It Compares for Beginner Investors

Reassess your goals regularly

It’s normal to reassess your goals or even change them. 

Life is full of opportunities, surprises, and sometimes unexpected setbacks. 

It's always a good idea to check in with yourself regularly and ask if you still want to meet your original goals. If you want to change a goal or update it, you’ll need to make a new plan. 

One good time to reassess your goals is if you go through a major life change like getting married, having a child, losing a spouse, or divorcing. 

FAQs

What is a good example of a financial goal?

A good example of a financial goal is one that is specific and measurable. Make a financial goals list with plans that are clear and achievable. 

It's also a good idea to give your goal a specific timeline so that you can track your progress regularly. 

Don't forget to celebrate when you reach your goal and take the time to set new ones!

What is a good annual return on investment?

Historically, the S&P 500 averages around 10% returns over the past century. 

Some years, market returns are higher, while in other years, like during a recession or the pandemic, returns are lower. 

In general, a good return is between 7% and 10%, and an excellent return would be one that is above 10%.

How much money should I have saved for retirement?

The AARP says to plan to spend 80% of your pre-retirement income after retirement. 

Another common recommendation is to save 25 times your regular expenses for retirement. So, if you want to live on $50,000 per year, aim to save $1.25 million. 

Of course, how much you should save for retirement is a personal decision that varies based on your circumstances, lifestyle, and goals. 

If you think you might spend more in retirement due to living in a more expensive city, traveling extensively, or managing a health condition, you might need to save more to reach your goals.

TL;DR

Before you can start investing, you need to set your investment goals. Think of your goals like a map: it’s only after you know where you want to go that you can figure out the best way to get there.

Goals are personal, and not everyone will want to achieve the same things. Think about what’s most important to you — because when it’s important to you, it’ll be easier to stick to.

Once you know what you want to achieve, divide them up into short-term, medium-term, and long-term goals. Once you know how long you have to achieve them, you can then determine your risk tolerance for each and the best investment account for your needs.

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