How to Set Investment Goals

Setting investment goals is a crucial step towards financial success. We break down the criteria you need to consider to identify achievable goals.

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How to Set Investment Goals

When investing for your financial future, you are essentially allocating your money to an asset that is created with the intention of allowing your money to grow over time.

If you're thinking about investment goals, you've probably got a good idea of what you want to get out of your money. Knowing yourself, your needs and objectives, and your appetite for risk is a good start.

But you’ll also need to consider factors such as your income, age, and future outlook, all of which will influence your motivations for investing.

It's well worth taking the time to really think about what you want out of your investments, keeping in mind that time will be a crucial factor. When investing for your financial future, you are essentially allocating your money to an asset that is created with the intention of allowing your money to grow over time. How you set investment goals relies very much on how quickly you need to take your money out.


Need some help setting your investment goals?

The steps outlined below should help you to understand what your investment goals are. If you’d prefer to talk to someone to make sure you’re on the right track, please don’t hesitate to get in touch!

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Step by step: Setting investment goals

With this in mind, here's how to create a realistic plan for achieving your investment objectives within a certain time frame.

1. Goals: Consider your reasons for investing

The reason for investment goals is to make money, but there's more to it than that. What will you use this money for? If it's for things like making up an income shortfall, planning for retirement, paying off other obligations, or buying another asset, then you should be prepared for a mid- to long-term commitment, usually of at least five years. If your objective is to reap rewards before then, you might be better off saving.

2. Risk: Consider how much you’re willing to risk

The value of your investment can go up as well as down, and ultimately your investment goals and objectives will depend on your own risk appetite. It's a good idea to think about where you can take risks and where you can't, making sure you consider your other financial commitments. For example, if you’re close to retirement, you’ll want to avoid any big losses just before you take your money out.

3. Timescale: Decide how long you want to invest for

Generally, the longer your money is invested, the more opportunities it has to grow in value and reach your goal. But how long you invest for will depend on what you want to get out of it. Typically, anything you’ll need money for in five years or less is seen as short term, while goals set five-to-ten years from now are considered mid term. Long-term goals are usually over periods of over ten years.

4. Strategy: Make an investment plan

Once you’re clear on your needs and goals – and have considered how much risk and time you can take – you need to identify any suitable investment opportunities. Generally, it's best to start with something low risk, like cash ISAs. If you're happy to accept higher volatility, you could then add medium-risk investments like unit trusts. Only once you've built up low and medium investments might you be ready for something higher risk.

5. Mix it up: Build a diversified portfolio

One of the best ways to protect against the ups and downs of the market is to create a balanced, diversified portfolio of investments. Different investments are affected by different factors: economics, interest rates, politics, conflicts, even weather events. What’s positive for one investment can be negative for another, meaning when one rises, another may fall. Putting all your money in one kind of investment is therefore a risky strategy.

Make the most of tax allowances

Some types of tax-efficient accounts mean you can normally keep more of the returns you make, so it's definitely worth thinking about when setting investment goals. An example of this could be putting your money into your pension or using up your Individual Savings Account (ISA) allowance. A financial advisor can help you think about whether you’re making the most of your tax allowances and talk you through suitable tax-efficient investments opportunities.

The importance of regularly reviewing investment goals

Markets go up and down all the time, so it's important to review your investments annually and check they’re on track to achieve your investment goals. Some aspects to review include any changes to your financial goals that may benefit from a different plan, checking your asset allocation is one you're comfortable with, diversifying your portfolio, and assessing performance to see if there are certain aspects of your portfolio that need rebalancing or selling.

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