Turn your financial goals into an investment plan

A well-thought-out investment plan can help you thrive financially as well as protect you from falling into some common behavioural investment traps. But how do you create an investment plan? And where do you start?

Start with financial goals.

Studies show that people are more successful when they set goals for themselves. Whether it be funding your retirement lifestyle, paying education expenses or a must-do holiday, setting specific goals can keep you on track.

You can translate these goals into an investment plan with 4 questions.

1. How much do I need?

You’ll want to have an amount to work toward, so do some research to figure out what your goal will cost. Try and set realistic expectations based on both your current financial situation and future plans.

2. When do I need it?

Most savings goals will have some flexibility, but it’s still a good idea to have a target date in mind. This will hold you accountable—and give you the motivation to stay on track.

For example, your goal could be saving up for a first-home deposit in five years or saving for a comfortable retirement over the next 30 years. This allows you to figure out what percentage return you need to generate annually in order to reach those goals– a definite reality check.

Your goals coupled with the dollar amount you wish to achieve and when you would like to achieve it by can be a powerful motivator for spending and investing discipline.

3. What will it take to meet my deadline?

It’s easy to estimate how much you’ll need to put away to reach your goal by your target date. Just take the total amount you want to save and divide it by the number of months (or weeks, or years—however often you plan to contribute money) between now and your deadline.

Along with understanding your goals, you should also understand what resources you currently have and what constraints there may be:

• Your monthly income and your expenses.
  How much can you contribute on a regular or periodic basis?  While it might seem straightforward, setting a budget and sticking to it is fundamental.

• Your attitude to risk.
  Everyone has a different approach to investment risk but knowing how much market fluctuations you can withstand means you can choose investments that align with your risk appetite.

Other constraints can include costs of investing, exposure to taxes, liquidity needs and ethical values..

4. How should I invest my money?

Investing can help you achieve your financial goals more quickly. However, the investments you choose should be tailored to your specific situation.

There are numerous investment options, each with its own level of risk and potential return. Understanding these options and how they complement each other can empower you to make well-informed decisions about where to allocate your funds.

Asset allocation refers to the way in which a portfolio is divided between asset classes or investment type, such as growth assets like shares and defensive assets like cash or bonds. This strategy is crucial for determining your portfolio’s long-term performance and can help mitigate volatility.

You can either build your own portfolio of investments or opt for an all-in-one ready-made, diversified portfolio that aligns with your individual risk tolerance.

Finally, decide on monitoring frequency

Periodically monitoring and evaluating a portfolio relative to savings targets, return expectations and long-term objective is an important part of investing. But be careful of over-monitoring and adjusting asset allocations based on short-term market movements.

Your portfolio value will fluctuate daily; it will go up and down by the hour. By deciding at the outset how often you will check your portfolio and rebalance, you can more easily avoid unnecessary stress or the temptation to time the market and day trade.

One of Vanguard’s key principles for investment success is to adopt a long-term view and to stay the course. This means maintaining perspective and sticking to your investment plan, even in periods of market uncertainty.

To help you stay on track, consider exploring Vanguard’s range of Diversified ETFs, which are expertly designed and ready-made to give you access to thousands of Australian and international shares and fixed interest securities through a single ETF investment.

Important Information

Any investment is subject to investment and other known and unknown risks, some of which are beyond the control of Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (VIA) , including possible delays in repayment and loss of income and principal invested.  Please see the risks section of the PDS for the relevant VIA product for further details.  No Vanguard company, nor their directors or officers give any guarantee as to the performance or rate of return of any Vanguard product, amount or timing of distributions, capital growth or taxation consequences of investing in the relevant product.