Investment Fundamentals

Investment learning starts here

Investing for your goals


An investment is generally defined as the purchase of a monetary or physical asset, where that asset provides either a future income, or can be (hopefully) sold later at a higher price – or ideally both.

Now whilst that’s fine as a general definition, the reality is that investing is really all about doing something with your money that achieves a specific goal.

Therefore, the first step in any investor’s journey is to clearly identify those investment goals. To invest without a clear understanding of the end goal, is like setting sail with no particular destination in mind – you may end up just going in circles.

The other benefit of clearly identifying goals is that it helps keep you on track, and acts as the central compass of your investment roadmap.

Goals are also central to identifying those investment strategies and asset classes that may be appropriate to reach your goals, and those that aren’t.

Savings plan or lump sum

Investing can take a variety of forms, but will generally fall into two main categories:

1. Savings plans, whereby you are putting money into an investment vehicle on a regular basis over a period of time to achieve a particular financial goal, or;

2. Lump sum investing, whereby you already have a larger sum of money that you would like to invest, with the aim of getting a financial return on those assets (either income, capital growth, or both).

Note that this may include situations where you have borrowed a lump sum of money to invest, due to the large sum required (such as with property investing).

For both of these categories above, an investor’s goals will generally be thought of in terms of short term, medium term, and longer term goals.

Lets have a look at some examples:

Saving plan goals

Starting with savings plans, here are a few examples:

1. Short term goal:
Save for an overseas family holiday to be taken in one year’s time.

2. Medium term goal:
Save for children’s education over the next 3 to 5 years

3. Long term goal:
Saving for retirement, which may be 10 or more years into the future. This is where superannuation comes in, as super is simply a long term savings vehicle with tax advantages.

Lump sum investment goals

For lump sum investors, the following are examples of goals investors may have:

1. Short term goal:
To use the income generated by investing a lump sum over the next 6 months for a specific purpose, like taking a holiday for example.

2. Medium term goal:
To retire in the next 7 years, and therefore to invest accumulated superannuation funds over that time frame to grow as much as possible within the investor’s individual risk and volatility tolerance.

3. Long term goal:
To invest accumulated superannuation capital at the point of retirement, with the objective to provide sufficient retirement income to cover living expenses over the next 20 or so years, whilst growing the capital modestly to keep ahead of inflation.

As you can see, different goals have different time frames. This is important to understand, as these timeframes, combined with your stage of life, and your own personal risk tolerance, will dictate which types of investments are more appropriate than others for achieving specific goals.

For example, if you are investing for a short period of time, then you will generally want to have a more certain outcome. In this case, investments such as cash and term deposits may be the most appropriate as they have the least amount of variance in their performance in the short term.

Contrast this with say a blue chip share portfolio. In this scenario, the overall returns are highly uncertain and variable in the short term (i.e. can be negative), however the probability of positive returns well in excess of cash increases as time is increased.

Hence for long term goals, share portfolios can come into play.

In the next article, we’ll cover the fundamentals of risk and volatility, and how when combined with your goals, helps dictate the types of investments that can be suitable for you.

Latest Research & Insights

Chart of the Week: how inflation will negatively affect the business cycle

One of the key themes of 2021 has been the return of inflation, after many years of absence. In fact, there would be an en...

Read article

Gold trending higher and what’s driving it

Gold is one of those assets that has a lot of misinformation around it. It gets promoted by some as something to be held w...

Read article

Hybrids / Listed Income Model Portfolio Changes

There has been a change to the Hybrids / Listed Income model portfolio. One of the Consumer Discretionary subordinated not...

Read article

Register for our FREE newsletter to receive investment insights, education, and SMSF trustee updates