The First Step to Investing: Understand Your Goals

September 01, 2018 · 4 minute read

The First Step to Investing: Understand Your Goals

When it comes to investing, most people start with What. What should I invest in? What should my portfolio strategy be?

But there’s actually a more important place to start: Why do you want to invest in the first place?

That’s because selecting an investment strategy depends a lot on your financial goals. You can’t plan the right portfolio unless you know what you want to save for, how much you want to save, and when you’d like to use that money.

So before you invest a dime, let’s get clear on what you want to achieve.

Setting Your Financial Goals

First, almost everyone should have these two goals: Creating an emergency fund and saving for retirement. We like to call these “bookend goals”—your primary short-term and primary long-term goal. From there, your goals are entirely up to you.

Your First Goal: An Emergency Fund

Your emergency fund is a lump sum that you can easily access should an emergency arise—for example, if you get laid off or face an unexpected health cost. This fund should be three to twelve times your monthly spend, depending on how risk-averse and well-insured you are.

Ask Yourself:
•   How much do I spend each month?

•   How many months’ expenses would I like to have saved?

•   What’s my target emergency fund?

Your Ultimate Goal: Retirement

Retirement is your largest financial goal, and even if it feels very far away, it’s important to start saving early.

Why? The goal is so large, you want to give your money time to work for you. Let’s say you and your partner will need $6,000 per month in retirement income (in today’s dollars). If you start saving at 40, you would need to save $46,000 per year to be on track for retirement at 67. However, if you start saving at 30, you need to save $32,000 per year. (Note: This assumes you both receive Social Security in retirement!)

Ask Yourself:
•   At what age do you want to retire? For those born after 1960, full Social Security retirement age is 67 .

•   How much money do you need to live on each year (in today’s dollars)?

•   How long do you expect to live? Statistically, those born in the 1980s have a life expectancy of 71 for men and 78 for women , but to be safe (and optimistic), plan on 90 for men and 95 for women.

•   What do you currently have saved for this goal? Use our retirement calculator to see if you are on track.

Your In-Between Goals: Houses, Families, Businesses, and More

Everything in between your emergency fund and retirement entirely depends on you. For example, do you want to buy a home? Start a family? Launch a business? Go on an epic three-week vacation? Many of the above?

Any goal you can think of is on the table, you’ll just want to be specific—exactly how much money you need to achieve each goal, and by when. Why? You have a much higher likelihood of reaching that target—plus, when the time comes to use that money, you’ll have already given yourself permission and can enjoy it.

Ask Yourself:
•   What is your goal?
•   When do you need the money?
•   How much do you need?
•   How much can you save each month?

Starting Your Investment Strategy

As you’ve seen in the exercises above, each of your goals has a specific time horizon. This leads to an underlying investment strategy: Generally speaking, the longer the time horizon, the more risk you can afford to take, because you can weather market losses. Here’s what we mean:

Short Term (Less Than 3 Years)

For goals like: Setting up an emergency fund, travel, buying a new car.

The rule of thumb is to keep any money you need within the next three years “liquid,” or available to access as soon as you need it in a high-yield savings account. If you have a higher risk tolerance, you might consider investing some of this money in a conservative portfolio that will pay you higher interest than a savings account, but still has a low risk of losing money.

Medium Term (5-10 Years)

For goals like: Home purchase, starting a family.

With a time horizon of 5-10 years, you can afford to take some risk with your money and give it a greater chance to grow. For these types of goals, SoFi advisors recommend investing in a moderate or moderately conservative portfolio.

Medium-Long Term (10-20 Years)

For goals like: Child’s college savings, second home

With a time horizon of 10-20 years, you can afford to take more risk with your money and take advantage of the power of compounding. You may want to consider a moderately aggressive portfolio.

Long Term (20+ Years)

For goals like: Retirement, financial independence

For long-term goals, time is on your side to weather the ups and downs of the market and economic cycles. You can focus on aggressive growth while you are young and then shift to more conservative investments over time. To save for retirement, you’ll want to invest in a 401(k) plan, an IRA, or both. These accounts shelter your investment gains from taxes until you retire.

What’s Next?

Once you’ve outlined your goals, you’ve completed the first step of investing.

The second step? Learning more about the investment options that are available to you and choosing a portfolio that will help you achieve your goals. Download the SoFi Guide to Investing Intelligently for a step-by-step guide to investing, including setting goals, understanding the tradeoffs between risk and reward, and learning about the various types of investments and retirement accounts.

Or, set up a complimentary appointment with a SoFi Wealth advisor, who can help you quantify your goals and discuss the right investment strategies to reach them.

The bottom line? Investing is not just for the wealthy; it’s for anyone who wants to achieve financial goals. First, you just need to know what they are.

Open a Wealth account today.


SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.

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