Can you meet your short-term goals?

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 that requires long-term investing. But as you journey through life, you’ll also have shortterm goals, such as buying a house, car or saving for a wedding. How should you invest differently for long-term and short-term goals?

Let’s first look at how you might invest to achieve longterm goals. For these, the key investment ingredient is growth — quite simply, you want your money to grow as much as possible over time. Consequently, it is probably appropriate for a good percentage of your portfolio to be invested in what have traditionally been growth-oriented vehicles such as stocks and stock-based investments to fund your Registered Retirement Savings Plan (RRSP) or other investment accounts.

The flip side of growth is risk. Stocks and stock-based investments fluctuate in value. The strategy is that by putting time on your side, by holding your growth-oriented investments for years (or even decades), you hope to 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're not seeking maximum growth potential as much as you want 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. In general, you’ll want these investments to provide you with the following attributes:

PROTECTION OF PRINCIPAL

When you own stocks, you have no assurance that your principal will be preserved; there’s no agency, no government office, guaranteeing that you won’t lose money. And even some of the investments best suited for short-term goals won’t come with full guarantees. However, by and large, most short-term investments offer a certain amount of confidence that the principal will remain intact (generally, the risk is lower, but so is the return).

LIQUIDITY

Some short-term investments have specific terms — i.e., two years, three years, five years, etc. — meaning you have an incentive to hold these investments until they mature. If you cash out early, you might pay some 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 before they mature or at maturity, and this liquidity can be helpful when you need the money to meet a short-term goal.

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 long-term goals. But short-term goals are still important, and the right investment strategy can help you work toward them.