Map Out What Each Investment Goal Will Cost

(2 of 5)

Map Out What Each Investment Goal Will Cost

The first step when juggling various investment goals is to determine what each goal is and what it will cost.

Review courses on determining the costs of your goals, which discuss in detail how to calculate the cost of your retirement. Then, begin work on the costs of your other goals.

Here is what to consider

Whether you’re saving for retirement, for a home, or for your child’s education, goal setting comes down to answering a few key questions:

• How much will the goal cost each year?
• How many years will I be tapping into this portfolio to pay for the goal?
• What will the total cost of the goal be?
• What will inflation do to that total cost?

Once you’ve answered these questions, you’ll know how much you’ll need to accumulate to fund each goal.

Prepare for some shock

You may not be happy with the numbers. You may be trying to save $1 million for your retirement in 30 years, $200,000 to send your daughter to college in 15 years, and $20,000 for a down payment on a home in five years—all at the same time. How can you do that without working three jobs, investing every penny, and obtaining an unrealistic 30% return on your investments every single year?

Maybe you can’t do it all. Perhaps you can only fund half of your son’s education—loans, scholarships, and work-study programs may need to play a part. And maybe that much-bigger home will need to be scaled down to a somewhat-bigger home instead. Or maybe you’ll need to put off retirement for a few extra years.

Investing is all about trade-offs. By looking at all of your investment goals together, you can determine which trade-offs you’re willing to make.