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  • The Economist

How your goals should determine how you invest



Goals are simply things that we decide we want to do or achieve in a certain timeframe. Goal setting plays such an important and integral part of the investment journey.


Investors may spend a considerable amount of energy and time focusing on their financial situation but the majority won’t have specific financial goals. They may have heard about the importance of goals but probably haven’t spent the small amount of time needed to really focus on the specifics.


Timeframes play a very important part when you are setting financial or investing goals.

Your goals could be:

  • short, medium or long term

  • for today, for this week, for this month or for this year

  • short term goals that build toward a bigger long term goal.

Your age too is an important factor; as you get closer to retirement for example, you are likely to become more risk averse and this affects the way you set your goals. Different timeframes often mean using different strategies to reach your goals.


To help you align your goals with your investment time horizons, the following is a guide to what you can expect as an outcome. Of course, your goals are specific to you and may not fit into this framework so use them as a guide only.


Start with the goal


Start with the end goal in mind and the date you want to achieve it. You now have only two variables to manage:

  • How much of your savings you are prepared or able to allocate to achieving this goal;

  • And what return do you need to generate on the money you have set aside.

The further away your end-date, the more important the return element will be. In fact when it comes to retirement, as much as two thirds of what you spend in retirement will come from the earnings – therefore fees and returns are critically important.


For short term goals, though, it’s really all about the amount you set aside, as returns will play only a small part.


Short Term


If you have a target date less than three years away (such as saving for a holiday or for the deposit on your new home), focus on certainty. Your outcome will be driven primarily by the cash you set aside.


For these goals, you should focus on predictable investment outcomes, access when you need it and safety, even at the expense of returns. Bank deposits will be the most common solution. If you have a home loan, an offset account is likely to give the best outcome.


Shares and property are generally unsuitable.


Expect a return of less than 2% these days on products like a bank term deposit or a high interest account and the equivalent of your home loan interest rate on an offset account.


Medium Term


If your target date is at least three years away but less than seven years or so—focus on trying to improve returns a little by including some growth assets (think things like shares). The period is not really long enough for property due to the high transaction costs of buying and selling. As your goal gets closer, start to lock in gains by moving to bank deposits or your offset account.


Expect a return of 5% (before tax) or so on a mixture of shares.


Long Term


For target dates between, seven and fifteen years (such as providing for your children’s education), focus more on achieving better returns by including more growth assets, including shares and property.


Look to gradually invest, rather than buying all at one time.


If you pay a high rate of tax (earning over $80,000), look at managing tax by using tax-effective products like insurance bonds, or investing in the name of a lower earning partner.


Expect a return of 6-8% (before tax) or so on a mixture of shares, property and deposits.


Very Long Term


For very long-term goals—with target dates exceeding 15 years— especially retirement savings (like your superannuation), focus mostly on growth assets, including shares and property.


Pay particular attention to fees and tax, and for retirement savings, take advantage of the tax savings provided by super.


Cash and bank deposits are generally unsuitable for this type of investment timeframe.


Aim for a return of inflation plus 4-5% or about 8-10% after tax in super.


Planning for life—a new house, a holiday, your retirement—the first step is a plan.


If you're a do-it-yourself type, a good place to start is by setting some clear goals and strategies on how you're going to get there.


Reach out for a chat if you would like to discuss your short, medium or long term goals and how this can be matched with an effective investment plan.



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