When setting goals, many subscribe to the SMART method – making goals specific, measurable, achievable, realistic, and set within a realistic timeframe. When considering timeframes, there’s an opportunity to break down your objectives into short, medium, and long-term goals. But with increasing life expectancy, what is classed as short, medium, or long-term has changed.
This does not constitute advice and advice should be sought in all instances before acting on it.
In general, short-term can be considered five years or less, five to ten years is considered medium-term, and long-term is ten plus years, which should help you plan accordingly.
Short-term goals
Since short-term goals would be things you can easily achieve in five years or less, they tend to be practical and more realistic, such as buying a car or a dream holiday.
These kinds of purchases are more suited to cash savings rather than stock market investments as stock markets are open to volatility and market dips and surges. If you happen to need your money during a downswing, you might have significantly less than you planned, or if the situation is especially dire, you could have less than you invested in the first place!
Short-term goals require solutions better equipped to provide the return you need within the timeframe that you need it.
Medium-term goals
Goals easily achieved in the medium term, five to ten years, also require a special kind of investment strategy. You have more time and flexibility than you would in the short-term, but you still don’t have all the time in the world to hit your goals.
Medium-term goals might be paying for a wedding, starting a business, paying for your children’s higher education, or possibly even buying a house. Your goals might be more costly than short-term goals, but you will have more time to get where you need to be.
As you have a little more time to ride out the ups and downs of the market, stocks might be an option to help you reach your goals. You could also start to include shares and bonds in your investment portfolio as they also require time for recovery if there are any downturns over the years
Long-term goals
Long-term investments, which are ten years away or more, allow for the most flexibility, but because they are so far off, it might be easy to forget to check in and review them from time to time. A goal post that is further away gives your money time to work, while also letting you enjoy the benefits of compounding.
Compounding is the process of reinvesting earnings, from either capital gains or interest, in order to generate additional profit over time. Growth occurs because you not only have the initial principle but any accumulated earnings all working to earn you more money.
Long-term investments require a diversified portfolio, which includes a mix of assets (and even diversity within those asset classes) that offer a healthy blend of risk and return, and with balanced protection and varied exposure. With long-term investments, time is on your side, so you should have no problems riding out the volatility of the market.
Stay on track
It’s highly unlikely the same goals you set for yourself fresh out of university will remain the same over the course of your life. As your goals, along with your attitude to investment risk will probably change, you should review how your savings and investments are growing annually, at the very least. A financial adviser can help you review your plan and make any changes to keep your plans on track. Get in touch with us to check your progress and refine your goals.
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