BLOG: How goals can help you get the most from your investments

0
Written by:
20/10/2014
We've all got goals in life and achieving them can be an expensive business.
BLOG: How goals can help you get the most from your investments

With a little forward planning, using your goals as a motivation to save and invest for the long term can help you reach your targets.

Be honest

Goal-based investing forces you to take a long hard look at your finances and understand exactly what you can afford, and how much you want to save towards the things you want in life.

If it’s not as much as you’d like, there will be difficult decisions to make about where to cut back without the addition of credit or other means of borrowing. However this will help you to understand just how much you’re able to save towards your goals, and help you do it in the most efficient way.

Set realistic goals with a timeframe

Having a goal of “I want to save £50,000 for a house deposit by September 2016” is far more specific and attainable than “I’m saving to buy a house”. Setting a specific amount and timeframe for your goal will help you work backwards and see how much you need to save.

It’s the same for retirement planning – think about how much you think you’ll need in retirement and then work backwards to figure out how much you need to save now. There are a variety of pension calculators available online that can help you find out what you’ll need and what you need to start putting away.

At Nutmeg, we found that the average timeframe for someone investing towards a child’s education is around 14 years. If you’re investing towards your retirement your timeframe would ideally be much longer than that.

Remember that the effect of compound returns and interest will work in your favour over the long term; so the earlier you start, the easier it will become.

Use a token of your goal

Learnings from the field of behavioural economics show us that we are better at sticking to our goals when we have a ‘commitment device’. A commitment device can be anything that you use to signify your goals in the real world. It might take the form of a photo or object that drives you to save, or it could be the simple act of communicating your goal to friends and family so that they will ask you about your progress.

Many people use automation such as Direct Debits or standing orders to force them to save a portion of their salary as soon as it comes in. This is just another form of a commitment device.

Split your goals and prioritise

People have many goals in life, and if we split our saving or investing goals up into small pots they are more easily achievable. Rather than viewing your whole portfolio as one pot that is going to provide for every eventuality it’s more effective to split it up according to your personal goals – for example retirement, your children’s education and perhaps a house purchase.

It’s also good practice to set up a separate rainy-day fund so you don’t need to raid your other savings to cover unexpected costs.

Understand your levels of risk

For each of your different goals, you may have a different tolerance to risk. We’ve seen that Nutmeg customers saving towards their retirement or their children’s education generally opt for higher-risk investment portfolios as they are generally investing over a longer period of time and have a certain figure in mind that they would like to achieve.

Those saving for shorter-term goals such as holidays, weddings or house purchases generally take a lower-risk approach to try and avoid market volatility taking a bite out of their savings.

Whatever you’re investing for, crystallising your goals and aspirations for your money is key. The clearer a picture you have of what you want to achieve, the easier it will be to commit to the process of regular saving.

Nick Hungerford is CEO of Nutmeg.

Risk warning: The views and opinions expressed herein are for informational purposes only. They are subject to change without notice, and do not take into account the specific investment objectives, financial situation or individual needs of any particular person.

They are not personal recommendations and should not be regarded as solicitations or offers to buy or sell any of the securities or instruments mentioned. The views are based on public information that Nutmeg considers reliable but does not represent that the information contained herein is accurate or complete.

With investment, your capital is at risk. The price and value of investments and income arising from them may fluctuate and you may get back less than you invest.

Tag Box

Debt

Pension

Spending

Financial fitness

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

The essential Your Money guide to the April 2018 tax changes

As we head into the 2018/19 tax year, a number of key changes take place to existing policies while some new i...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

YourMoney.com Awards 2018

Now in their 21st year, our awards recognise the companies offering the best products and services to consumers

Money Tips of the Week

Read previous post:
Consumer confidence dips for second time in 2014

Consumer confidence has dropped for the second time in 2014, according to the Lloyds Bank Spending Power Report for September,...

Close