Goals Based Investing

Are you giving yourself the best chance of success?

2 min read

Before you start investing, defining your goals will help you to plan and budget and will also help you understand which investments may be right for you.

For the purposes of this article, saving is defined as putting money aside, into products such as a savings accounts in a bank or building society for short term use, rainy day funds and generally not for long term goals. Investing is defined as taking some of your money and trying to make it grow or generate income from it by investing in financial products that you think will increase in value. For example, you might invest in stocks and shares ISAs, investment bonds or shares in a fund.

Generally, the sooner you start saving or investing, the better chance you may have of seeing results. Match your long-term investment goals with your short-term lifestyle aspirations. Once you have defined what your goals and time frames are, review your budget. Be realistic about what you can afford to put aside for your investments.

To help you stick to your budget, look at your cash management and put strategies into place, such as keeping a close eye on income and expenditure, and looking to see where you may be able to save on your outgoings.

It’s well worth taking the time to think about what you really want from your investments. Knowing yourself, your needs and goals, and your attitude to risk is a good start. Whether you are at the start of your savings or investment journey, or if you are already a veteran, your Succession Wealth Planner will work to help guide you with the aim of keeping you on track to achieve your goals.

How to get started:

1. Goals

Be clear about what you’re investing for; your goals might be around enhancing your current lifestyle, planning for your family or your own retirement, whatever they are, making sure you know what you’re aims are is so important.

Thinking about what exactly you want the money for, and when you’ll need it will ensure you understand the types of savings or investment option could be right for you. Can you leave your money tied up for a few years, or will you need it in 12 months’ time? You should consider these types of questions to make sure you’re clear on what your goals are.

2. What can you afford?

Before you start investing, you should always make sure that you can afford your essential living costs, as well as any debts you may have. Once you have those essentials covered, look at what you spend your money on, you may be able to identify areas where you can save which could provide you with additional disposable income. That said, it’s always a good idea to make sure you have some savings to cover emergencies such as losing a job or unexpected illness which may prevent you from working.

3. Investment Risk

Have a think about how much risk you feel comfortable taking with your money. Risk is an important part of assessing the prospects of an investment. The trick is to strike a balance between your personal attitude to risk, your investment goals, time frame and need for returns and your personal circumstances; how much can you afford to lose?

You should always consider your other financial commitments when deciding how much risk to take. If you don’t want to or can’t take any risk with your money, then investing may not be for you right now.

Investing is generally most appropriate for medium and long-term goals (at least five years), so if your goals mean you would need access to your money before that, you might want to think about more short-term savings options instead.

4. Timescale

As a general rule, the longer your money is invested, the better the opportunity it has to grow in value. Not only will the money you invest have the potential to grow in value, there’s also the possibility that you could get growth on any previous growth. This is commonly known as ‘compounding’, and over longer time periods it could make a difference to the value of your investments.

You should always be aware that investments can fall as well as increase in value, so you should only ever invest what you can afford to lose.

5. What you’ll get back

The final value of your investments will depend on three main factors: how much you pay in, how your investments perform, and how long you’re invested for. Generally speaking, the more you pay in, the better your investments will return. And the longer you can keep your money invested, the more you're likely to get back. This should be balanced with the understanding that investments don’t always give you back the amount you originally invested. Make sure you plan in regular reviews of your initial investment plans, including what you can afford to pay, to ensure you remain aligned to your goals, and to make sure you can still afford to continue to invest.

6. Mix it up

Putting all your money in one type of investment can be a risky strategy. You can help reduce that risk by spreading your money across a mix of investment types, this is called diversifying. Most people choose from four main types of investment, which are grouped according to characteristics they have in common. These are known as ‘asset classes’.

The most common asset classes are considered to be:

Cash – this could include savings and current accounts, savings and premium bonds and other National Saving and Investments (NS&I) products. These are considered to be “low” risk, but you can lose money over time if inflation is higher than interest rates paid.
Fixed Interest Securities – these are also called bonds and are essentially a loan to a company or Government for a fixed period. These are Gilts (Government bonds), overseas bonds, local authority bonds and corporate bonds (loans to companies). These are considered to be relatively “low” risk.
Shares - also known as ‘equities. Risk levels vary.
Property – including residential or commercial property and buy-to-lets, and investments in property companies or funds. Risk levels vary.

Investments can be affected by many different factors: economics, interest rates, politics, conflicts, even weather events. What’s positive for one investment can be negative for another, meaning when one rises, another may fall. Make sure you take advice on what is right for your individual circumstances before you commit yourself to investing.

7. Be tax-efficient

Tax is never a one-size-fits-all, each taxpayer will have different circumstances and situations which could affect their tax situation. There are several valuable allowances and tax reliefs which you may benefit from, so you should ensure you have all the information you need before you decide where to invest. You could look to put money into your pension or use up your Individual Savings Account (ISA) allowance and speaking to a certified wealth planner may help you to identify what is right for you.

8. Review, review, review

Probably one of the most important and key elements of investing is to ensure you make time to regularly review your investments, to make sure they remain on track to meet your goals. Regular reviews also mean you’re in a position to make any adjustments that are necessary to your investments which reflect changes in your personal circumstances.

Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested.