Setting investment goals

• Do I have to set investment goals?
• What are the main benefits of setting investment goals?
• Risks of not setting goals
• How to set investment goals

Investment goals are specific financial objectives you aim to achieve through investing, such as saving for retirement, buying a home, or growing your wealth.

Setting them is crucial for improving your financial knowledge and wellbeing, as it gives you a clear roadmap to make informed decisions and track your progress.

Do I have to set investment goals? 

It’s a fair question! The reality is that investing without a plan can leave you out of step with your financial needs and risk tolerance, potentially leading to disappointing returns or unwanted risks.

For example, if your goal is to save for a holiday in several months' time, you need to make sure your money is accessible and isn’t tied up for a year or longer. If it’s a house deposit, a wedding, retirement or something else in the future you’re aiming for, then a longer-term investment plan may be smarter.

And remember, you’re never too young to start thinking about your retirement. If your goal is to live comfortably after you finish working, investing early means you’ll benefit from the power of compound returns and be able to reach your goal that much faster. 

Another important factor in setting investment goals is your risk appetite. Risk in investment is connected to your investment timeframe. If you have a long-term investment timeframe, you might choose an investment that can rise and fall in value in the short or medium term such as shares. If your investment goal is short term, shares might not be right choice for you.

However, your investment timeframe is only one factor in deciding your risk appetite. Your personal risk tolerance also plays an important part in any investment you select.

Regardless of your time horizon or risk tolerance, you can see from these examples that investment goals are highly personal and all about making sure your investments are working for you. 

What are the main benefits of setting investment goals?

Investment goals give you a clear roadmap to make informed decisions and track your progress. But there are other benefits, from avoiding emotional investment decisions to making sure you’re not taking on more risk than you’re comfortable with. Here are a few more benefits of having clear investment goals:

• They give you direction and focus. Clearly defined goals give your investment activities a sense of direction. Knowing what you are aiming for helps you stay focused and makes the investment process more purposeful.
• They help you manage risk. Understanding your objectives allows you to tailor your investment strategy to your risk appetite. Whether you're focused on wealth accumulation, income, or capital preservation, your goals help you decide on the level of risk you are comfortable taking.
• They provide a foundation. Investment goals help you figure out what you want to achieve with your money, and that, in turn, guides how you should invest. In simple terms, your goals act as a blueprint for your investment strategy. This strategy may include the types of assets you invest in, the time horizon, and any diversification methods you might
• They provide a benchmark. Having set objectives provides a basis for you to evaluate the performance of your investment portfolio. It allows you to measure whether you are on track to meet your goals and make adjustments as necessary.
• Investment goals are motivating. Goals of any kind – financial or otherwise – act as a motivating factor. Seeing your progress towards achieving a well-defined goal can encourage you to stick to your investment strategy, even during market downturns.

In summary, setting investment goals helps you to make a financial plan, manage risk, evaluate performance and stay motivated. These will all help improve your chances of financial success.

Risks of not setting goals

The risks of not setting financial or investment goals are pretty much the opposite of the benefits listed above. 

A lack of direction is one of the major risks of investing without clear goals. You could find yourself making arbitrary decisions or investing in random assets without a clear understanding of how each decision fits into a larger plan.

Without knowing what you're aiming for, you might also take on too much or too little risk in your investment choices. This mismatch can lead to unexpected losses or underutilisation of your investment capital. Online tools such as the MAS Fund Finder are useful for understanding your risk tolerance and matching you with a fund that fits your needs. 

Another risk is missed opportunities. Without goals to guide your decisions, you may miss out on investment opportunities that could have helped you achieve specific financial milestones.

Finally, a lack of goals means you could end up engaged in emotional investing. Lacking clear objectives can make you more susceptible to emotionally charged decision making, such as panic selling or impulse buying, which can harm your financial health in the long run.

How to set investment goals

There are plenty of online tools out there that will guide you through the process of setting your investment goals. However, there are also several steps you can consider yourself:

1. Start by asking yourself what you want to achieve with your investments. Are you saving for retirement, planning to buy a home, or building an emergency fund? Knowing your objectives helps you choose the right investment strategies that align with your timeline and risk tolerance.
2. Being realistic with your goals is also very important. While many of us would like to retire or pay off our mortgages early, we need to make sure these things are achievable. Otherwise, we run the risk of being disappointed and demotivated.
3. Once you have a clear idea of your objectives, the next step is to quantify them. Instead of vague goals like "I want to go on a world cruise," be specific. If you're saving for a cruise, for example, calculate how much money you'll need for the fare as well as any airfares, additional travel costs and spending money. Factor in travel insurance, incidental expenses and other needs. With a specific target in mind, you can work backwards to figure out how much you need to invest each month to reach your goal.
4. Now, assess your risk appetite. This involves understanding how comfortable you are with the ups and downs of the investment market. Are you okay with higher-risk, higher-reward investments like shares, or do you prefer safer, lower-return options like term deposits? Your risk tolerance will significantly influence the types of investments that are suitable for you. Our Fund Finder can help you figure out which fund is right for you.
5. Finally, make sure you review and adjust your goals as necessary. Life circumstances change – perhaps you get a new job with a higher salary, or you have a new family member to consider. These changes can either expedite or delay your initial investment goals, requiring adjustments to your investment strategies.

Ready to invest?

We offer a range of investment options that could help you achieve your goals, big and small. And, if you need some guidance, you can speak with a MAS Adviser in person or on the phone for simple general advice, such as making the right fund choice to meet your savings goals and adding extra contributions to your investment. If you would like to talk to a MAS Adviser, phone 0800 800 627 or email info@mas.co.nz. 

This article provides general information only and is not a substitute for individually tailored advice. MAS only provides advice on products offered by its subsidiary companies. Advice is provided by MAS or by its nominated representatives (who are all MAS employees). Our financial advice disclosure statement is available on our website or by calling 0800 800 627.