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How to Plan Your Investment Goals

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What are your investment goals? It seems like a simple question to ask. When you really start to think about it, however, the answers are much more involved than most people realize. Do you know exactly how much money you need to save for retirement? What age you’ll retire at? What rate of return do you need to maintain to meet those goals? 

Working backwards from retirement goals, you’ll quickly find that planning investment goals is no small task. You need to have a firm grip on your investment mindset and time horizon. You’ll also need to put yourself in the right position to meet those goals—which means being active in monitoring your portfolio. 

Here’s how to plan your investment goals, and what it means to invest with purpose. You don’t need to be an active investor, per-say—but you will need to have an active understanding of the choices you make.  

Plan Your Retirement Lifestyle

The first step in planning your investment goals is understanding how much money you need to retire. To arrive at this figure, you need to plan your lifestyle. For example, if you plan on globe trotting around the world, retirement is going to cost more than if you make a one-time RV purchase and travel across North America. Likewise, if you have a health condition, you’ll need to plan for this expense in your later years. 

As a rule of thumb, your retirement income shouldn’t be any less than 75% of your pre-retirement income. Use this figure as a benchmark when extrapolating investments. For example:

  • If your average annual income is $60,000, retirement income should exceed $45,000
  • Average annual income is $80,000, retirement income should exceed $60,000
  • Average annual income is $100,000, retirement income should exceed $75,000

The more you earn, the more you’ll need to sustain your lifestyle in retirement. It’s also smart to consider factors like inflation and known large expenses. This is why estate planning and Monte Carlo simulations are worthwhile activities. They’ll help you make sure the retirement numbers align with your expectations. 

Understand Your Time Horizon

Time is a huge governing factor in setting your investment goals. The amount of time you have left to invest can dictate the types of investment for you. As a rule of thumb, the more time you have, the better. This is because time is the biggest contributor to compound interest. The more compounding periods in your investment timeline, the more opportunities for that sum to grow. 

The best time to start investing was yesterday. The second-best time is today. Whether you’ve got 45 years until retirement or 10, any time horizon is enough to make your money work for you. The sooner you get started, the better. The best way to make up for lost time? Invest more. Investing $1000 every month for five years will net you more than $100 every month for 20 years. 

Establish a Contribution Schedule

Speaking of investment amounts, consider how frequently you’ll invest. Every investor’s goal should be to contribute with some level of consistency. Often, it’s bi-weekly, with each paycheck. Others opt for once-monthly investments, so they can capitalize on lump-sum investments. There are pros and cons to any contribution frequency.

Choose a contribution schedule that gives you the flexibility you need in your month-over-month budget. At the same time, maximize your investments wherever possible. You don’t want to mortgage your present comfort for future gains and find yourself in debt. At the same time, you need to remain diligent about saving as much as you can, for as long as you can. Find the happy medium and plan your contributions around that. 

Choose Your Investment Vehicle(s)

The types of investment vehicles you use matter. For most people, that boils down to an IRA or a 401(k) for retirement. Within these vehicles, you have access to everything from individual securities, to mutual funds, to ETFs and indices. There are also growth stocks vs. dividend-payers, sector-specific companies to consider, and myriad other factors you’ll need to evaluate. 

Choosing your investment vehicle comes down to risk tolerance. If you’re risk-averse, stick to managed funds that are heavily diversified and stable. If you’re in it to maximize ROI, opt for high-yield securities and investments with high compounding prospects. Your investments should represent your goals as an investor—whether it’s a dividend portfolio to fund early retirement or a balanced portfolio that’s recession-ready. 

Be Mindful of Taxes and Fees

No matter how you invest, you need to be aware of taxes and fees at all times. While compound interest will generate exponential ROI, taxes and fees will take big chunks out of your wealth if you’re not careful. It’s important to identify capital gains, management fees, transaction fees and more, and account for them as you plan your investment goals. Remaining cognizant of fees and working to mitigate them preserves your rate of return and keeps your wealth intact for longer. 

Keep Track of Your Portfolio Performance

The most important consideration in establishing and tracking investment goals is being attentive. How is your portfolio performing year-over-year? What’s your current rate of return? To make sure you’re coming in on-target, you need to be present during the accumulation period. Thankfully, this is as simple as checking your ROI against an investment calculator to measure performance. 

Monitoring and adjusting your portfolio will help you meet your retirement goals. For the latest retirement strategies and investment tips, sign up for the Wealthy Retirement e-letter below.

It takes a little extra thinking and mindfulness to set good investment goals. Investors who take this initiative will find themselves living comfortably when the time to retire finally rolls around.


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