Set Specific Goals200191457-001


Whatever your dream is, it helps to have a plan. The first step in any investment plan is to write down your goals. For each goal, establish a specific dollar amount, the number of years you intend to stay invested, and take into account your comfort level with risk.

Setting Your Goals
Ask yourself the following questions as you think about your goals:

1. How much will I need?
If one of your goals is retirement, you'll need to determine your income needs. A 2005 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) states that only 42% of those surveyed had calculated how much they might need to invest for retirement. Without calculating your retirement income needs, you won't know whether you're on target to reach your goal. As you think about investing for retirement, remember that you could spend 20 years or more retired.

Be realistic about your goals and the time frame you have established to achieve them. Unrealistic goals may cause you to become discouraged and ignore your plan. It also may be tempting to give up on your goals if the market isn't performing the way you had expected.

2. How long until I reach my goal?
The amount of time you have before you reach your goal will help you determine an appropriate mix of assets. Generally, you want more potential for investment growth and can accept more price volatility if you have a longer-term goal. If you'll need money for your goal in five years or less, it's a good idea to begin adjusting your asset allocation to more conservative investments.

Unless you've set specific goals with time frames and have estimated your future income needs, you won't be able to take the next step when developing your plan. Write down goals to help keep you on track. Once you establish goals, then you can develop strategies for each one.

Planning based on goals
Consider the following questions as you plan investment strategies based on your goals:

1. Which investment mix will help me reach each goal?
It's common to invest for more than one goal. You'll probably need a separate investment strategy and accounts for each one, because time horizons and risk tolerance may differ. For example, you may choose a conservative investment that focuses on capital preservation for a short-term goal, such as saving for a down payment on a house.

Finally, consider your tolerance for market fluctuations as you determine your portfolio's asset allocation. By choosing a variety of investment types that perform differently in certain market conditions, you have the potential for an increase in one investment offsetting a decline in another. Diversifying your investments also can help reduce the overall risk to your portfolio.

2. What is the estimated rate of return on my investments?
First consider how much you'll contribute annually toward each goal. Reviewing historical returns of money market, stock and bond investments may help you set realistic expectations for your portfolio, although past performance is not a guarantee of future results.
Knowing how much you'll contribute each year and estimating the return on your investments will help you gauge whether you think you'll meet your goals.

Remember, stocks values and returns may be volatile and generally, as interest rates rise, bond prices fall.

3. Am I on track to reach my goal?
Review your goals annually, noting your progress toward each one. If you can see you will have a shortfall and not reach a goal, you may need to reallocate assets into investments with a higher potential for growth or simply invest more.

Staying on track
Most of us have specific reasons for investing. By writing down goals, you'll have a frame of reference when making investment decisions. By being specific, you'll know how much time you have to get there and whether you're likely to reach your goals.

This information is for educational purposes only and is not intended as investment advice.