How to Save and Invest to Achieve Short and Long Term Goals
You probably have short- and long-term financial goals. And the time frame you have to achieve those goals can help guide how you save and invest your money.
A vacation or a car are typically short-term savings goals, meaning you want to achieve your goal in the next five years or so.
Retirement, on the other hand , is a long-term savings goal, meaning it will likely take you more than five years to achieve it. Why is this important? Because investment strategies vary depending on how long it takes to reach your goal.
When saving for a short-term goal, financial experts advise you to put your money in a low-risk account , such as a savings account. Since you'll need to withdraw your money in the next few years, you want to be sure it will retain its value.
When you're saving for a long-term goal , you may want to invest your money so it can grow. When you need your money for the longer term, you may be willing to invest in investments that carry more potential risk but could also provide higher returns. Then, as you get closer to your goal, you may want to reduce your risk potential .
Consider your savings account, for example. You may want that money to be available quickly – in the very short term. So you’re happy to take advantage of the low interest rate that comes with a savings account because you know how much it will be worth to you when you need it.
At the other end of the spectrum is your retirement savings. If you’re not planning on retiring for several years, you may be willing to take on some level of risk in your investment strategy in the hope that over time it will improve.