CommSec - 2.1 Your investment goals (2024)

What types of investment goals should you consider?

What do you want to get out of investing? Your goals can be simple and short-term or more complex with long-term objectives.

You can also create multiple investment goals – for both the long and the short term. While this may all seem obvious, it’s an important exercise to go through.

Be realistic about your goals

Investment goals should be clear and measureable, and achievable within a realistic timeframe.There's no point trying to rush a goal because you want to reach it before a certain birthday, for example. One way to approach this could be to strike a balance between aiming for long-term benefit without making too many sacrifices to your current lifestyle.

A good way to assess the impact on your lifestyle is to break down a larger goal into smaller chunks or plot the steps you’ll take to get there. Remember, sometimes your long-term goals can be achieved by reaching many short-term goals.

Saving money is a simple example. If your goal is to save $10,000 in a year, you’ll need to save roughly $833 a month or $192 a week. Is that achievable?

If you’re aiming for multiple goals, make sure they’re compatible. For example, if your goal for retirement is overly ambitious, you might be sacrificing short-term goals (education fund, house renovation) for long-term goals.

Matching your goals to your investment strategy

As we’ve seen in topic one, investments can generate returns in two ways: growth and income. Your goals can affect the type of return you want to earn, which in turn can affect the type of investments you choose.

Time frames are important as they’ll help determine how much risk you’re comfortable with. For short-term investment goals, you may prefer lower-risk investments that generally provide lower returns but are more stable and less likely to be affected by market fluctuations. For example: cash, bonds or some ETFs.

For longer-term investment goals, you may be prepared to consider high-risk investments with the potential for higher returns. That way, if the market falls, you can ride out the storm and wait for a potential recovery.

We’ll discuss strategy in more detail in topic 3.

Why investment goals are crucial

It’s important to have investment goals because having something to aim for will not only keep you motivated but also help keep you on track. In essence, setting investment goals will:

• Form the basis of your investment strategy
• Help you decide which asset class to invest in
• Determine your tolerance for risk
• Help you know if you’re on track

Think on this. An investor without goals is like a traveller with no destination. You can jump in your car, but until you know where you’re going, you won’t know which way to steer.