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How Should My Financial Goals Impact My Investment Choices?

If you’re clear about your money goals, you can make better investment choices.

Growing your wealth is always a good goal, but it’s kind of vague. Achieving a goal becomes easier when you get specific about it and the reason behind it. To do this, ask yourself how you want your life to look in the future. Do you want to retire early, buy a home, buy a car, have a baby, pay for university, or travel the world in style? Pick one and zoom in: What sort of car do you need? How much does this dream car cost? What does it cost to run the car? If you’re wanting to buy a car, but also planning on having a baby fairly soon, can your car fit the family? 

Once you’ve got a really clear picture of your goal, it’s time to ask 2 questions:

1. When do you want it?

Investing for retirement and investing to buy property will have different time frames. Presumably retirement is a longer way off (in the next 30 or 40 years), whereas you might want to buy property or a car sooner (say, in the next 5 years). With that time frame in mind, you can determine the level of risk you’re willing to take on with your investment. 

2. How much risk is right?

When it comes to investing, you need to think about risk. That’s not as scary as you might think. Risk is a spectrum, not just a case or low-risk versus high-risk. You can decide between a low-risk or a high-risk investment, depending various factors like your timeframe, or mix both types together to get a moderate risk. 

Low risk usually means something is a stable investment, and the amount you put in will either stay the same, or yield guaranteed modest returns. A Money Market account is a good example of this. Low risk is usually for a short- to medium-term investment that you’ll want to withdraw soonish.

High risk doesn’t mean the investment is a bad idea. It just means that the amount you invest is more subject to external influences. Investing in shares is an example of this. As the stock market fluctuates, it affects your investment amount. That means that on one day it might look like you’ve lost a lot of money, and on another day you might have way more than you started with. The key is to remember that high-risk investments are a long-term thing. The up-and-down nature of these kinds of investments mean that it’s not appropriate for a goal that you need to obtain in the next 5 years. .

3. Choose your investment type.

There are so many different ways to invest. From Tax Free funds, to unit trusts, to stocks, to property, to cash, to hedge funds, to art and even wine, the options are seemingly endless and likely overwhelming if you’re a newbie. We’ve unpacked some of the basics for you in our article, In What Ways Can I Invest?, but you should also talk to a financial advisor or broker, be doing your own research (consulting trustworthy financial news sources and maybe even reading a few investing books) and talking to trusted friends and family members. Consulting an investment broker or financial advisor to help you with your unique situation and goal is a really good idea.

The bottom line: it’s your money, and it needs to grow for you. So be clear about what you’re investing for and understand where your money needs to go to realise those goals.

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