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How to Balance Long-Term and Short-Term Investment Goals

How to Balance Long-Term and Short-Term Investment Goals

| November 28, 2023

It’s fair to say that many (if not most) people associate investment plans with long-term, far-off future goals. This is primarily because of how many investment plans are set up — to pay for retirement, college tuition, business funding, mortgages, and other long-range priorities.

However, an investment plan can help address more immediate financial goals too. These might include setting up an emergency fund, taking care of home improvement projects, traveling, and more. They can also include mid-range goals like buying a new car, putting a down payment on a house, and paying off debt.

What are the best strategies for balancing short- and long-term investment goals? Here’s some guidance on what you can do.

Define Your Goals

The first step in forming any personal investment plan is knowing what you want.

There are no wrong answers here, so think carefully about your life and be frank about what you hope to achieve. Listing your goals and classifying them as either short- or long-term can give you a better idea of what you want your future to look like.

Many investors consider long-range goals to be the heart of their financial plans. Saving for retirement is generally the most common goal. Other future milestones to consider are paying for a child’s education, buying a home, and building a financial legacy for heirs.

Short-term goals may not carry the same weight as longer-term ones, but they’re still important to include in your financial planning. Common examples include taking a vacation, saving up for a special event or major purchase, and paying down high-interest debt.

Plan Around Typical Expenses

Everyone has immediate and ongoing needs they have to account for, no matter what their lifetime goals might be. Food, shelter, utilities, insurance, and healthcare are some of the most common necessities that must be addressed before making a long-term investment budget.

Set Up an Emergency Fund

At this stage, it’s a good idea to start a savings account with one clear purpose: dealing with emergencies. Unforeseen medical issues, car accidents, theft, and job loss are just a few of the unpredictable events that can wreak havoc on a family budget.

Many financial experts recommend starting a savings account with enough cash to fund living expenses for three to six months. Since they’re meant to cover emergencies, it’s best if funds from the account are liquid and easily accessible.

High-yield and money market accounts are especially good for serving as emergency funds. Generally, the account shouldn’t include long-term, illiquid investments.

The 50/20/30 Rule

Many investors use the 50/20/30 rule as a guideline for budgeting their income. This rule of thumb breaks down where to allocate one’s earnings:

  • 50% for needs (housing, groceries, bills, transportation, etc.)
  • 20% for savings (retirement, emergency funds, and general long-term growth)
  • 30% for wants (entertainment, hobbies, shopping, etc.)

While the 50/20/30 rule is a good framework to start with, some individual investors may see fit to adjust their allocations to reflect their current circumstances. If you live in an area where the cost of living is high, for example, you may find you need to allow more than 50% for your needs, while others may have more flexibility.

Pay Yourself First

A common piece of advice for investment strategizing is to pay yourself first. This can roughly be defined as siphoning off funds for retirement, emergency funds, and other savings vehicles before addressing other needs.

One especially effective way to accomplish this step is to automate your contributions to savings accounts. This is similar to how employers automatically deduct some of your pay as contributions to company-administered retirement plans.

Automated monthly payments to your retirement or savings plans are easy to set up with your bank or brokerage. They help control overspending and ensure that you stay on track with your financial objectives.

Set Up Multiple Accounts

Investors with a lot going on may want to set up individual accounts according to their priorities. These accounts can also be goal-oriented for things like major purchases or vacations or more long-term ambitions.

Multiple accounts may make it easier to diversify your holdings, which is something almost every financial advisor recommends doing to protect your funds and mitigate risk. 

Short-term savings accounts should focus on low-risk, high-yield investments like CDs and short-term bonds, while long-term accounts can take on higher-risk securities like stocks, ETFs, index funds, and real estate investments.

Get Help With Your Goals

If you’re coming up blank defining your immediate and extended financial needs, help is just a phone call or email away. Contact Good Life Morehead City for assistance prioritizing your goals and finding investment opportunities to support them.