Setting investment goals:
A practical guide

Published: 5 July 2019

Many of us embark on our investment journey with just a broad idea of what we want from it.

Some of the more common, general aims may include generating a regular income, making our money work harder, building financial security or growing a retirement pot.

But whilst having a broad idea of what we want is a good start and a motivational factor, it may not be the most effective way to approach things. It can be easy to fall short of achieving something if we’re not clear enough as to what exactly it is that we’re aiming for in the first place.

This is why setting specific goals can be such an important part of successful investing.

Be SMART

Ideally investment goals, like any other kind of goal you are serious about working towards, should be SMART - specific, measureable, achievable, realistic and time-bound.

Investment goals will vary by individual. Some might be medium-term goals linked to time-bound milestones for yourself or other family members, such as clearing a mortgage or paying for a child’s university education. Some might be ‘bucket list’ goals, the parameters for which you can set on your own terms, such as buying a dream home or taking the holiday of a lifetime. Others might be longer term, such as funding a comfortable retirement – whatever that looks like for you. Many investors will have a list of different types of goals over various time horizons.

Make a plan

Once you’re clear what you’re working towards and how long you’ve got to achieve it, you’ll be able to set a plan for how to get there.

Whatever your goals, mapping out how to achieve them will follow a similar process, from understanding where you are now, identifying where you need to be, working out how to get there, building and maintaining an appropriate portfolio to put your plans into action and keeping those plans under review as you go along.

You may find it’s an iterative process too. Once you get into the detailed planning you may realise, for example, that a goal you thought was realistic actually isn’t. Perhaps you’ll need longer to achieve it, need to reprioritise it relative to other goals or moderate your expectations a little. The key thing is you end up with an overall plan that is SMART for your circumstances.

Thinking of retirement?

Let’s get practical now. Say you’re looking towards retirement. Wanting a comfortable retirement is all good and well, but what does it mean and how can you achieve it?

  • Start by working out where you are now, by reviewing how much your current pension, savings and investments are likely to give you in retirement.
  • Then, consider when you want to retire and whether it would be a ‘cliff-edge’ retirement or a phased one.
  • Your plans and dreams for retirement should be factored in to help give you an idea of the difference between what you’re currently on course to retire with and what you might actually need, taking into account any likely family needs along the way.
  • Using specific figures when setting your targets will help to maintain focus on keeping them realistic and measurable. You could identify a range rather than one fixed target, taking into account the potential to overshoot the target or perhaps fall short.
  • Then the investment aspects can be nailed down. It’s key to ensure your portfolio is appropriately diversified, reflecting your objectives and your risk appetite.
  • Creating or amending your investment portfolio accordingly is just the start, of course. Portfolios can drift away from their asset allocations, performance needs monitoring and objectives can change over time, so even for the most experienced investors it’s essential to keep investment plans under regular review.

An easier path

Investment returns will always go down as well as up along the way, but once you’ve got your goals set out and appropriate investments in place to help you meet them, planning ahead and managing your portfolio becomes much easier.

And if you’re not confident to set your own goals and plans or pick the investments to help you meet them, you may want to pay for a professional financial adviser who has the expertise and experience to set you on the right path for the future you want.

Important information

This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.

Laws and tax rules may change in the future without notice.

Please be aware that the value of investments can fall as well as rise so you could get back less than you invest. Past performance is not a guide to future performance.

PLANNING FOR LATER LIFE?

You may find our Planning for life after work guide a helpful read.

Just one of our range of free guides to help you navigate the world of personal finance and investment and make the most of your money in the process.

View investor guides

Alliance Trust Savings Limited is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings Limited gives no financial or investment advice. ‘Alliance Trust Savings’, ‘ATS’ and 'AT Savings' are all brand names of Alliance Trust Savings Limited together with the ‘Alliance Trust Savings’ logo are owned by and used with the permission of Alliance Trust PLC, the previous owner of Alliance Trust Savings Limited.