How do I set investment goals?

Before you start, defining any goals you may have will help you plan, budget and choose the right investments. Your goals might be around enhancing your current lifestyle, planning for your family or your own retirement.

Goals can be simple and short-term or more complex with long-term objectives.

If you do not have a specific goal, defining a budget and timeframe will help you choose investments that suit your lifestyle and aspirations.

Risk and return

Investments carry different levels of risk and possible returns and understanding whether your goals can be achieved in 12 months, five years or even 25 years will help you decide where to invest.

Create a list of your goals and a realistic timeframe in which they can be achieved. For example:

• New car - 1 year
• House renovation - 5 years
• Retirement - 25 years

Understanding how long you have to achieve each goal will help you understand the risks you should take.

If you are investing for a short-term goal, the highs and lows of riskier or growth investments, such as shares, may not be right for you. But if your goal is medium or long-term, you may have time to accept a higher level of investment risk.

Understanding how much risk you are willing to accept is your risk tolerance and will also help you decide on your investments:

• Are you willing to lose your total investment?
• What impact on your life would it have?

If you have set long-term goals, make sure your goals will not have a short-term impact on the lifestyle that you are uncomfortable with.

For example, if you are in your 30s and have decided to start putting a little extra each month into your superannuation, are you sacrificing your chance of getting a mortgage or an annual holiday?

Lifestyle goals

Match your long-term investment goals with your short-term lifestyle aspirations.

When you have created your goals and timeframes, define your budget. Be realistic about what you can afford to put aside for your investments.

To help you stick to your budget, look at your cash management and put strategies, such as a direct debit from your current account into a dedicated savings or investment account, into place.

How to get started checklist:

• Have you set your goals?
• Have you decided on your timeframes?
• Have you defined your budget?
• Have you got a cash management strategy?
• Have you set your risk appetite?