Balancing Investing for Short, Intermediate, & Long-Term Goals
BY ANDREA BEREZNAK
Most investors have multiple goals. Some are shorter term, like saving $5,000 for a summer vacation. Other goals take a few years, such as saving $50,000 for a down payment on a new home 3-5 years in the future. Some goals, like saving for retirement, are long-term and can be 20 or more years down the road. In all of these goals, the main focus is to save and generate enough money to accomplish said objective.
How you save and invest toward these goals however, depends on multiple factors. The amount of time between now and your goal date is the one we will discuss today.
Bucket your Accounts by Goal and Timeframe
Separating your accounts by timeframe and goal can help you not only visually see your progress toward each goal, but also clearly segregate the investments. In this approach, each of the accounts has a defined purpose based on when you will be using the money inside: short-term (generally 6 months – 2 years), intermediate-term (3-7 years), and long-term (7+ years in the future).
Short-Term Goal Account
The structure of this strategy is to save and hold the funds you will need in the shorter term in very safe investments. This is so that you do not experience, and do not need to worry, about up and down swings in the stock market. It is preferable not to have to sell more volatile investments when the financial markets are down. Because you know you will need to utilize this short-term bucket soon, you give up the growth potential of investments like stocks for the security of investments such as money market funds, short-duration CDs, and U.S. Treasury Bills. These are all investments that are highly liquid and easy to convert into cash when needed.
Intermediate-Term Goal Account
Goals for 3-7 years down the road need to see some growth to keep pace with inflation. Depending upon your risk tolerance, they can take on some risk, but should not be highly volatile nor highly risky. Common investments to consider in these accounts include longer-maturity bonds and CDs, growth and income funds and ETFs, and portfolios with a moderate mix of stocks and bonds.
Long-Term Goal Account
When you have a goal that is farther into the future, for example your retirement 15 years from now, you have more time to weather the ups and downs that are inherent with investing in more risky assets, including the stock market. A diverse portfolio of U.S. and International Stocks of publicly traded companies of various sizes have historically higher long-term returns and are better able to outpace inflation. They also have more likelihood of a higher swings from year to year.
No one-size-fits-all strategy
Some more conservative investors may want to select cds or bonds even for long-term goals, knowing they could be sacrificing some potential growth for these investments’ lower volatility. Conversely, a riskier investor may feel comfortable holding stocks even for intermediate or short-term goals. In addition, a strategy that works well for you today may need changing over time as your goals and time horizon for those goals morphs.
How comfortable do you feel that you are saving the right amounts, in the right investments, to reach your short, intermediate, and long-term goals?
Do you have your goals clearly defined? We recommend you work with a financial professional to determine whether this strategy is a good fit, and which mix of investments is the most suitable for you.
If you have questions or doubts, we can help. Call us at (480) 507-2425 or contact us online. We’d love to meet you.
The content in this article was prepared by the article’s author. Cetera Advisor Networks, LLC does not endorse its content, and the views expressed may not necessarily reflect those held by Cetera Advisor Networks, LLC.