Here are important steps to consider when setting investing goals.

4 Steps to Setting Smart Investing Goals

When undertaking any sort of task, your best chance of success will come if you set clearly defined goals.

Investing is no different. An investment goal is a simple concept – it’s what you aim to accomplish by saving your money. But it’s important to set clear goals to help you create the investing and saving strategies you’ll need to reach them.

“Investing without knowing what you’re trying to accomplish isn’t a prudent strategy,” said Joe Correnti, senior vice president of brokerage product. “Setting investment goals involves taking a lot of factors into consideration to provide for the best chances of success.”

Here are some things to keep in mind when setting investment goals:

  • Understand why you’re investing: Different needs require different amounts of money. For instance, you’re likely going to need more money for retirement than you will to buy a new car. Having a clear idea as to why you’re investing will help you to determine how much you need to save as well as how much money you can reasonably expect from compound growth. It’s important to be as specific as possible. A person who wants to retire at 55 and live on an island will likely need a more aggressive strategy than someone who wants to retire at age 70 with a more modest lifestyle.
  • Time horizon is essential: Your time horizon, or how long you have to actively invest, can give you a lot of ideas on what you can expect to accomplish and how to get there. Investing for retirement 40 years down the road will involve a different plan than investing to buy a house in a couple of years. 
  • Determine how much to invest: Once you know why you’re saving and have established your time horizon, the next step is to determine how much you need to set aside regularly to meet your goal. This step might the most challenging, because it requires making some judgments that can be difficult to determine. For example: How much will you need in retirement to supplement Social Security and private pension plans? How much will a college education cost 20 years from now? How will I plan for the unexpected? How much can I reasonably set aside today? If what I can save today isn’t enough, will I be able to increase my savings in the future? Ideally, you would save as much as you can as soon as you can to take advantage of compound returns.
  • Know your risk tolerance: Your risk tolerance is your ability to withstand a market downturn. As you build your investing goals, you have to assess how much risk you’re willing to take —meaning how far could you watch the stock market fall without wanting to sell everything in a panic. If you can’t handle large declines, your long-term returns are likely to be lower than someone who will accept more risk, and you might have to adjust your investing goals.

“It’s great to have dreams, but you also need be realistic,” Correnti said. “Your investing goals need to be in line with your financial plan.” 

Next Steps: Check out some products and account types that could help with your investing plans.

The information and content provided in the Scottrade® Knowledge Center is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy. There can be no guarantee the strategies discussed in any presentation will be successful.

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