Define investment goals
One of the keys to successful investing is identifying your investment goals, and the time frame over which you will invest.
Investing
for a specific goal
When investing money, many people have a specific goal in mind.
If this is the case for you, you need to decide what time frame
is attached to that goal - short term, medium term or long term?
Examples of investment goals are:
Short term (1 - 3
years): overseas
holiday; car; taking time off work to care for a baby
Medium term
(3 - 5 years): deposit on a house; boat; a sabbatical or extended
break from work
Long term (5+ years): childrens' education; holiday house; retirement/early retirement
Investing a specific amount
Rather than having a particular investment goal, some people may just be wanting to invest a certain sum of money eg an inheritance. If you are in this situation, you need to decide what you want from that money.
Do you want to use the money in the next year or two? (in which case you are a short term investor). Or do you want a regular income? (you will need medium term income-producing investments). Or do you want it to achieve capital growth over a long period of time, and are willing to take a long term view?
Time Frame
The time frame
of your goals will determine how the money should be invested. As
we discuss in risk and return,
there is a difference between short term and long term investors.
A short-term
investor would be more likely to choose a more conservative investment
like cash, to ensure that their capital is available in the next
1 - 3 years when they need to access it.
A long-term investor would be more willing to invest in 'growth
assets' such as shares,
as they do not need to access their capital for at least 5 years,
so are less concerned about short term ups and downs. They recognise
that the potential returns are much higher in growth investments,
and if they are held over the long term the risk is reduced.
A financial adviser can assist you to understand the types of investment most suitable for your goals. If you are seeking a financial adviser, see our section Need financial advice?