What does an investment goal look like?
Investing is the act of acquiring an asset with the goal of generating wealth. Ideally, you gain a return that’s larger than what you originally used to invest.
One thing to consider is getting more granular with your investing goals than “making money.”
“It could be simple, like, ‘I want to have saved enough to replace my car in 10 years,’ or more complex, like, ‘I want to save enough so that I can retire at age 65 with $2,500 per month, after taxes, from my investments, for as long as I’m alive,’” says independent Certified Financial Planner Alexandra Macqueen.
She explains that the first goal is simple because it involves a smaller amount of money and a shorter time frame. The second is more complex because it involves several moving pieces: a longer time frame, a tax consideration and an uncertain end date.
Most people will have multiple investment goals, and to keep track of them, independent Certified Financial Planner Shannon Lee Simmons says, “I like to name accounts to make them goals-based. Usually this works well for short-term savings accounts that aren’t invested. For example, travel, or home repair.
“But you could use the same type of mental compartmentalization for long-term investment accounts as well,” Simmons continues. For example, maybe one portion of your RRSP is invested specifically for your retirement, which you will not touch until you are 65; and another portion is invested with money earmarked for a future down payment using the Home Buyer’s Plan.
Make your goals SMART
Another way to help set yourself up for success is by using the SMART format, which gives you five steps to take when setting up a goal.
- Specific: make each goal clear and specific
- Measurable: frame each goal so that you know when you have achieved it
- Actionable/Achievable: you need to be able to take practical actions to achieve a goal
- Realistic: goals must be relevant and realistic
- Timely: assign a timeframe to each goal (short- and long-term) so you can track progress and achievement
Now that you know how to create investing goals, the next step is figuring how to pick investments that are appropriate to those goals and track their performance.