How to invest for your financial goals

Authored on
20 Dec 2022



This article is the second in our series to help you get started investing. Today we look at financial goals, how investing towards them could be beneficial and how thinking about your goals can help when making your investment decisions.

What are financial goals?

Financial goals are the price tags attached to your big life goals. They’re usually hefty price tags that can take a number of years to build up to, so one very good reason to start investing is to help you achieve them. Everyone has financial goals and it’s important to consider whether investing could help you achieve yours, providing you’re in a position to get started.

A good example of a financial goal is a pension pot, which allows you achieve your dream retirement. Building up your pension pot takes time, given the amount most people need to live off when they retire. Though everyone’s different, research carried out by Which? Money found that an average annual single-person income of £19,000 is needed for a ‘comfortable’ retirement, whereas £31,000 is needed if you want to glam up your golden years (these figures are just an average, what you’ll need depends on when and how you retire). That’s a lot of money, but a long-term financial goal well worth having.

Pension pots everywhere tend to be invested because, over time, investments can grow your money beyond what cash can achieve, and that could be the difference between retiring and retiring in style. But a dream retirement is just one of the goals you could choose to invest for. Other common goals include a first house, a wedding, a holiday of a lifetime…the list goes on! All of these goals come with their price tags, and if inflation has its way they’ll only increase. Investing the money you earmark for them could help you beat inflation and achieve your goals sooner than you think.

However, it’s important to only invest for your long-term financial goals. For any short to medium term ones – perhaps doing up the kitchen or a week away next summer – the risk of losing money is greater when you invest it. That’s because the market could dip just as you want to take your money out and you won’t have time for it to bounce back. So, generally speaking, if you want to reach your goal within the next five years, it’s best to put that money into savings instead.

While investing can help you achieve your financial goals, working back from your financial goals can help you invest! Keeping your goals in mind is a handy investing hack when making decisions like ‘which investment account to choose?’, ‘how long to invest for?’, ‘how to invest?’ and ‘what to invest in?’. So, sticking with the example of dream retirement, let’s look at how your goals can help you make your investing decisions.

Which investment account should you choose?

Well, which fits your goal? Dream retirement is an easy one: a pension - it’s what they’re designed for! If you’re not sure which investment accounts fit your goals, have a browse of what’s available out there. AJ Bell offer every possible type of investment account and Dodl deliver on the big four: pensions, investment ISAs, lifetime ISAs and general investment accounts.

How long to invest for

It can be helpful to think about this as ‘when do you want to achieve your goal?’. With our example, it’s also important to understand that the earliest you can take money out of your pension pot is age 55 (going up to 57 from 2028). This should give you a rough idea of how long you have to invest for your dream retirement. You’ll likely have a different timeframe in mind for your other financial goals but just remember when investing, give yourself at least five years to achieve them.

How to invest

This is all about how much you need for your goals and how often to put money aside for them. A dream retirement can be expensive, as mentioned earlier, and so it’s important to invest enough towards it. But this can be done over the long term, squirreling away little and often by making monthly pension investments. Though investing lump sums every so often is another way to go if that works best for you. There’s no right answer but remember to work this around what you can afford.

What to invest in

Knowing your goals gives you a rough idea of how long to invest for, and this can help you decide what to invest in. Looking at the example, the further away you’re planning to retire, the more risk you could potentially take when choosing your investments. That’s because you have longer for higher risk investments to (hopefully!) pay off with a greater reward. A general rule of thumb is this: the more time you have to invest, the more risk you can usually afford to take when choosing investments. But always make sure you feel comfortable with that level of risk too.

Financial goals will keep coming up because it’s important to keep them front and centre when starting to invest - they’re the reason you’re doing it after all!

Finally, nothing in this article should be taken as advice. Money Matters doesn’t provide advice – so if you feel unsure about anything, it’s best to speak to a qualified and regulated financial adviser.

Remember that the value of investments can change, and you could lose money as well as make it. How you're taxed will depend on your circumstances, and tax rules can change. Pension, ISA, tax and LISA rules apply.

These articles are for information purposes only and are not a personal recommendation or advice.