Meagan Henriques is a client education instructor at TD Direct Investing. She joins us now. Meagan, our question for you today is-- we'll bring it up. Why do I need an investing goal? Don't I just want to make as much money as possible?
- So the reason why it's important to have an investing goal is because it helps to structure our financial goals, because ultimately, all investors want to make as much money as possible. But if we're not taking into consideration our time horizon, our risk profile, and the rate of return that we need for each goal, we might not be as effective as possible. That being said, we shouldn't be investing the same way for our shorter-term goal that's, let's say, a year down the line, comparative to our longer-term goal that's maybe 40 years down the line.
- You know, it's a really good point that time horizon is so important. And what I know from what we've talked before, you said that there's some real risks for being maybe too aggressive-- if you just say, I want to make as much money as possible and, to your point, the goal's a year away.
- Exactly. Because if we're not taking into consideration our time horizon, for instance, our longer-term goals, if there's a drop in the market, we can wait it out. We don't need to panic. We don't need to sell. We can wait for it to recover.
But our shorter-term goals-- let's say I had one that was a wedding that was one to two years down the line. If markets drop, I can't just change the wedding date because the finances haven't gone my way. I'm going to have to sell at a loss and maybe make sacrifices to the initial plan that I had for myself.
For instance, when I started to invest, the only goal I had was I want to make as much money as possible. I didn't think of what the money was going to be used for. So two years in, I had to sell at a loss because I was purchasing a condo. So had I thought originally of what the money was going to be used for, I wouldn't have been as risky in my investments.
- It's interesting because you talk about the goals. You mentioned a couple there. So you don't just have to have one goal. I mean, we all have many goals, some things we're trying to do in life. You mentioned condo, wedding. So what's the right number? I mean, can people have more than one?
- I think that most people are going to have more than one. I don't think we necessarily need to set a number, per se. For me, what's going to be important is to set our timeframes.
So our short-term goals, one year and less. Our medium-term goals, one to five years. And our longer-term goals, five years and more. Because when I'm going to be creating my investment plan, my shorter-term goals are going to be less risky, and my longer-term goals can be at the riskiest level, always within our risk profile.
- Yeah, and that's a good point. You have to figure out what you're comfortable with and then look at the time horizons, too. Let me ask you, though, if you were just to deconstruct us, for someone who is listening of this and going, OK, I have a goal, what do we do? How do they actually bring that to life?
- That's a great question. So I would say, it's important to create a plan that's going to be achievable for you. So maybe start off with one to three of the plans that are the most passionate to you, the goals that you really want to achieve. And then we're going to break it down.
Research how much you're going to need. Define when you're going to need the money for. And then from there, you're going to write it down and create a plan. For instance, I'm going to be setting aside $100 a month for my wedding, $50 biweekly for my retirement. So that way you can keep track of your progress and investing accordingly.
- Meagan, great to have you with us. Thanks so much.
- Thank you.
- Meagan Henriques, she's a client education instructor with TD Direct Investing. And a reminder-- if you have any questions, we do love to hear from you. You can send them to firstname.lastname@example.org with the subject line Ask MoneyTalk. We'll answer that question for you, or check on our website. We've got lots of questions there for you already that have been answered.