How can you meet short-term goals?

South Shore Breaker - - HEALTH&WELLNESS - KEVIN DOREY FI­NAN­CIAL FO­CUS kevin.dorey@ed­ward­jones.com

Why do you in­vest? If you’re like most peo­ple, you’d prob­a­bly say that, among other things, you want to re­tire com­fort­ably. Ob­vi­ously, that’s a wor­thy long-term goal, re­quir­ing long-term in­vest­ing. But as you jour­ney through life, you’ll also have short-term goals such as sav­ing for a wed­ding, a sec­ond home, re­mod­el­ing your kitchen or tak­ing a much­needed va­ca­tion. Will you need to in­vest dif­fer­ently for th­ese goals than you would for the long-term ones?

To an­swer that ques­tion, let’s first look at how you might in­vest to achieve your longer-term goals. For th­ese goals, the key in­vest­ment in­gre­di­ent is growth. Quite sim­ply, you want your money to grow as much as pos­si­ble over time. Con­se­quently, you will likely want a good per­cent­age of growth-ori­ented ve­hi­cles, such as stocks and other stock-based in­vest­ments, to fund your RRSPS or other in­vest­ment ac­counts.

How­ever, the flip side of growth is risk. Stocks and stock­based in­vest­ments will al­ways fluc­tu­ate in value — which means you could lose some, or even all, of your prin­ci­pal.

How­ever, by fo­cus­ing on hold­ing qual­ity in­vest­ments and putting time on your side — that is, by hold­ing your growth-ori­ented in­vest­ments for decades — you can help over­come the in­evitable short-term price drops.

In short, when in­vest­ing for long-term goals, you’re seek­ing sig­nif­i­cant growth and, in do­ing so, you’ll have to ac­cept some de­gree of in­vest­ment risk. But when you’re af­ter short-term goals, the for­mula is some­what dif­fer­ent: You don’t need max­i­mum growth po­ten­tial as much as you need to be rea­son­ably con­fi­dent that a cer­tain amount of money will be there for you at a cer­tain time.

You may want to work with a fi­nan­cial pro­fes­sional to se­lect the ap­pro­pri­ate in­vest­ments for your short-term goals. But, in gen­eral, you’ll need th­ese in­vest­ments to pro­vide you with the fol­low­ing at­tributes:

Pro­tec­tion of prin­ci­pal

As men­tioned above, when you own stocks, you have no as­sur­ance that your prin­ci­pal will be pre­served; there’s no agency, no govern­ment of­fice, no guar­an­tee that you won’t lose money. And even some of the in­vest­ments best suited for short-term goals won’t come with full guar­an­tees ei­ther, but, by and large, they do offer you a rea­son­able amount of con­fi­dence that your prin­ci­pal will re­main in­tact.

Liq­uid­ity

Some short-term in­vest­ments have spe­cific terms — e.g., two years, three years, five years, et cetera — mean­ing you do have an in­cen­tive to hold th­ese in­vest­ments un­til they ma­ture. Oth­er­wise, if you cash out early, you might pay some of the price, such as loss of value or loss of the in­come pro­duced by th­ese in­vest­ments. None­the­less, th­ese types of in­vest­ments are usu­ally not dif­fi­cult to sell, ei­ther be­fore they ma­ture or at ma­tu­rity and this liq­uid­ity will be help­ful to you when you need the money to meet your short-term goals.

Sta­bil­ity of is­suer

Al­though most in­vest­ments suit­able for short-term goals do pro­vide a high de­gree of preser­va­tion of prin­ci­pal, some of the is­suers of th­ese in­vest­ments are stronger and more sta­ble than oth­ers — and th­ese strong and sta­ble is­suers are the ones you should stick with.

Ul­ti­mately, most of your in­vest­ment ef­forts will prob­a­bly go to­ward your long-term goals. But your short-term goals are still im­por­tant — and the right in­vest­ment strat­egy can help you work to­ward them.

Kevin Dorey is a Fi­nan­cial Ad­vi­sor with Edward Jones. Based in Tan­tallon, Kevin spe­cial­izes in help­ing in­di­vid­u­als reach their se­ri­ous, long-term in­vest­ment goals. He can be reached via email or at (902) 826-7982. Edward Jones is a member of the Cana­dian In­vestor Pro­tec­tion Fund.

123RF

When in­vest­ing for long-term goals, you’re seek­ing sig­nif­i­cant growth and, in do­ing so, you’ll have to ac­cept some de­gree of in­vest­ment risk.

Lisa J. Ernst

Water­shed Farm Owner Camelia Frieberg and em­ployee Josh Heard get ready for Open Farm Day on Sept. 16.

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