Defining Investment Goals


Thanks so much for your questions and responses to this column. It seems as though there is not a lot of information out there for domestic partner planning. Your responses to the previous column overwhelmingly requested me to slow down a bit, and get back to financial-planning basics. Below you will see the four cornerstones of investing, which together can be the foundation for creating a personal investment strategy.

1. Define Specific Goals

2. Diversify Among Investment Types

3. Stay Invested

4. Periodically Review Your Portfolio

This L Style column will cover the first cornerstone of defining specific goals. Be sure to “flip it” to the G Style column to learn more about the next step, diversifying among investment types.


The markets change every day, but your investment plans don’t. Why are you investing and what are you planning for: retirement, a second home, more flexible spending money? These are all long-term goals, which require long-term planning.

It’s easy to forget the long term when you can see the daily short-term swings in the markets. But for most investors, the right approach to investing depends on what you are investing for. While many of the broad reasons people invest are similar, individual plans, timeframes and risk tolerances can be very different. As the old quote goes: “If you don’t know where you are going, any path will take you there.”

No matter what you’re investing for, keeping long-term goals in mind can help you maintain your perspective on market volatility. That’s important because, as the chart below shows, when you factor in the effects of inflation, more stable invest- ments may not return enough to meet your long-term goals.

For most investors, the best advice may be to focus on your goals and to construct a portfolio with an asset mix designed to help you pursue your financial goals. Maintaining some cash in a diversified portfolio can provide liquidity, flexibility and stability. However, some exposure to stocks and bonds, which have historically been more volatile, may also be an important piece of an overall investment plan.

Let’s look at how differing goals can result in differing portfolios. Here are two sample portfolios of investors with different life goals and financial plans. These hypothetical portfolios are not recommendations, may not be appropriate for some investors and do not include actual investment vehicles. Of course, your portfolio should be constructed with your specific situation and goals in mind.

Planning Ahead for Growth

Susan and Nancy are in their 40s. Both have careers and have no current need for additional income from their investments. They have two grade-school children, so building savings for tuition and other expenses is a high priority. Longer term, they would like to be able to retire or work more flexible hours by the time they are in their early 60s.

As you can see, this hypothetical portfolio is invested primarily in stocks. Susan and Nancy have the time to ride out potential market downturns to pursue potentially higher long-term returns. And, adding exposure to international equity and fixed income may help manage risk through diversification.

Seeking Security for Current Income

Jody is about 60 years old and entering retirement. Jody needs to generate income to help pay living expenses and do some traveling. She’s also hoping to achieve modest growth to stay ahead of inflation as she plans to live a nice long life.

This hypothetical portfolio has mostly fixed-income investments. Since Jody is not earning a salary in retirement, she cannot afford too many high-volatility investments. But notice that there is still 30 percent in different types of stocks. After all, for a healthy 65-year- old couple today, the chances that at least one person will live to 85 are about 80 percent.* So while security is central, building in some growth also makes sense.

Now “flip it” to the G Style column and let’s discuss diversification.