How to Set Investing Goals

Goal-setting is a vital step toward reaching financial success, especially when it comes to investing. Setting specific, achievable goals can help you to narrow your focus, create a plan, and stay motivated along the way.

In this guide, you’ll learn the importance of goals, what makes a good investment goal, questions to ask yourself when setting them, and some next steps to take.

Why Goals Matter

Studies have shown the significance of setting goals in reaching financial success. One well-known example that continues to be referenced is a 1979 study conducted by and of MBA students. Of the graduating students, only 3% had written goals and plans to accomplish them, 13% had unwritten goals, and 84% had no goals at all.

After 10 years, the students with unwritten goals were earning an average of twice as much as those students with no goals at all. The small percentage of students with written goals were earning 10 times as much as the rest of the students combined.

Goals provide many benefits toward achieving financial success, including providing clarity around what you want, offering motivation, and creating a clear and specific plan to follow. When investing, having goals in place can help individuals take the first step toward something that feels new or overwhelming to them.

“We often hear from our customers—especially our younger customers—that getting started with investing is a very nerve-wracking part of the experience,” said Kelly Lannan, senior vice president of emerging customers with Fidelity Investments, in an email interview with The Balance. “With many different ways to invest, not to mention the potential for market volatility, new investors can understandably feel overwhelmed.

“That’s why it helps to start with the goal. By setting a goal, you can determine the course of action to achieve it, including how, when, and where to invest your money, and how much time you have or need.”

What Makes a Good Investment Goal?

The most common rule of thumb that experts recommend for goal-setting is the use of SMART Goals. It is a mnemonic device that stands for the following:

• Specific: Setting a specific financial goal requires identifying how much you plan to save and the purpose you plan to save it for.
• Measurable: Financial goals are often easy to measure. There’s a specific dollar amount attached to them, and you can clearly see how close you are to reaching yours.
• Achievable: While it’s okay to set lofty goals, setting goals that aren’t achievable can lower your motivation and pull resources away from other goals that you can reach.
• Relevant: A good investment goal should align with your broader goals and values.
• Time-Bound: Attaching an end date to your goal not only provides some sense of urgency but also helps you calculate exactly how much you need to save monthly or weekly to achieve the goal.

Questions to Ask When Setting Your Goals

When you’re setting financial goals, there are some guiding questions you can ask yourself to help craft an investment plan and ensure that you’re on the right track. We spoke with Taylor Jessee, a certified financial planner (CFP) and the director of financial planning at Taylor Hoffman Wealth Management. Jessee shared a few questions that investors can ask themselves:

What Do I Plan to Do With This Money?

You must get clear about your financial goals and understand just what you’re saving for.

“For example, is it for buying a house, sending a kid to college, [or] saving for retirement [that] is years or decades in the future?” Jessee said. “In general, it is best to separate your money into different buckets for different goals, because your investment approach should be different for each.”

When Do I Expect To Need This Money?

Your time horizon is the number of years before you plan to need your investment money, and it’s an important part of building your investment strategy. The longer your time horizon, the more aggressive you can usually afford to be in your portfolio.

How Much Risk Am I Comfortable With?

While general rules of thumb can apply to most investors, everyone has their own risk tolerance, and their investment portfolio should reflect that.

“There are no guarantees when you invest (in anything, not just the stock market), so [think about] how much you are comfortable losing if it doesn’t turn out the way you hope,” Jessee said.

What Else Could This Money Be Used For?

While investing can be an excellent way to reach your financial goals even sooner, it’s crucial to ensure that you aren’t putting money at risk that you may need for something else. For example, while your emergency fund may only be earning a small amount of interest in a savings account, it’s probably not money you want to put at risk in more aggressive investments.

Do I Understand What I Am Invested In?

Regardless of what’s in your investment portfolio, it’s important that you fully comprehend what you’re invested in. In the case of individual stocks, you should understand the companies and become familiar with their financial situations. In the case of mutual funds, understand the goals and the funds’ managers’ investment strategies.

How to Set Realistic Investing Goals

It’s easy to discuss the importance of setting goals, but taking the steps necessary to set and achieve your financial goals is something else entirely. Below, you’ll find steps to follow to properly set realistic investing goals.

1. Identify Your Goal

The first step towward achieving your goals is to identify what exactly you want to achieve. Common investing goals include retirement, a child’s college education, or a dream home. Knowing your goal and making it SMART will help you create an investment plan to reach it.

2. Identify Your Investment Strategy

When deciding how you’ll invest the savings for your goal, be sure to consider your time horizon.

According to the Financial Industry Regulatory Authority (FINRA), short-term goals—those achievable in less than three years—may be best suited to liquid investments like cash, Treasury bills, and money market accounts.

For mid-term goals that are three to ten years away, you can balance your portfolio between high-quality, fixed-income investments and stocks. 

Finally, for long-term goals that are more than ten years away, you can take a more aggressive approach, investing in stocks, mutual funds, and exchange-traded funds (ETFs).

3. Start Small

According to a recent survey from Fidelity, 36% of Gen Z adults who did not trade during the market volatility in Q1 of 2021 would feel more comfortable starting to trade if they could do so with small amounts of money.

And according to Lannan, a simple adjustment to an investor’s approach can make their goals feel more achievable.

“For newer investors, and for those who may be more risk-averse, it may be best to start small and get a better understanding of the process,” Lannan said.

4. Look for Support

Finding the advice and support you need to reach your financial goals has never been easier. Countless social media pages share in-depth financial advice about investing and other topics. Most investing platforms have educational resources on their websites to help investors get started. If you are a person of color seeking financial advice or are a financial professional yourself, CHIP Professional provides free online and in-person services with Black and Latinx financial professionals, as well as paid membership programs, networking opportunities, and more.

Measuring Your Progress

Your work isn’t over once you set your financial goal and build your investment portfolio. It’s important to track your progress to ensure that you’re on the right track.

“The easiest way to track and measure progress toward goals is to use an app or online financial planning tool,” Jessee said. “Not to oversimplify, but with these tools, you can input your current assets, how much you’re saving, and the dollar amount of financial goals you want to achieve (i.e., college, retirement, buying a vacation home), and the tool will generate some kind of score or graph to show you whether you’re on track.”

As you measure your progress toward reaching your goal, you should also be prepared to change your strategy if what you’re doing isn’t working. In many cases, you may need to change your investment strategy or increase the amount you’re saving each month.

Frequently Asked Questions (FAQs)