What Do You Know About Goal-Based Investing and Time Horizons?

Saving is an essential part of a good long-term strategy for financial security. But what about investing?

The truth is that saving and investing aren’t mutually exclusive—they go hand in hand! Together, they can help you build a solid financial future. The key is to have a long-term financial plan and a balanced mix of both.

Saving helps you put aside money for the future with guaranteed dividends and easy access to your funds. It’s a great way to prepare for unexpected expenses or for savings you plan to spend (down payment, vacation).

Investing generally gives you greater potential for growth over time, but it comes with some risk. You can earn money by buying part of a company, bond or fund. It’s great for longer-term goals (tuition, retirement, building wealth).

Before you start your investing journey, consider these questions:

• What are my goals?
• Can I leave the money to grow over time, or will I need to spend it on a specific short-term goal?
• Do I want guaranteed returns, or am I willing to take some risk? If so, how much?

With that in mind, explore the ideas of goal-based investing and time horizons to see how they could apply to your situation.

Goal-Based Investing and Time Horizons

We all know you can reach some financial goals faster than others. It all depends on what you want to achieve and how long you have to achieve them.

With goal-based investing, you work toward accomplishing specific goals. You measure success by how well you’ve met your goals (instead of how your portfolio performed generally).

Choose Investment Types Based on Time Horizons

Some examples of short- to long-term goals many people work toward are:

• vacations
• down payments
• tuition
• retirement
• building overall wealth

Knowing your time horizon—or how long you plan to hold your investments—can help you refine your plan.

Short-Term Time Horizons (less than 5 years). For goals that you can achieve in a relatively short time (vacations, down payments), you’ll want an account that isn’t likely to be affected by stock market downturns and potential losses.

Dividend-earning accounts that allow you easy access to your funds and/or that you can open for a limited amount of time are great for this type of goal. Although you may earn less than you might with stock market investments, these types of accounts offer guaranteed returns:

• Basic savings accounts
• Money market savings accounts
• Certificates

Medium- and Long-Term Time Horizons (5-10 years or more). If you expect to take several years to achieve some goals (expenses related to starting a family, child’s education, retirement), market-driven investments like stocks, bonds and exchange-traded funds (ETFs) might work best for you. These types of investments offer the greatest potential for growth and, in spite of periodic downturns in the market, tend to yield higher returns over time.