How To Set Investment Goals

A sound investment plan begins by determining your objectives while understanding any limitations or constraints that may exist. While most objectives are long-term, a plan must be designed to persevere through changing market environments and be able to adjust for unseen events along the way. If you have multiple goals, each of these goals needs to be taken into consideration. Once developed, a plan needs to be reviewed at regular intervals.

Consideration should be given to your time-horizon for each goal within the plan. For example, if college education expenses will be incurred in 10 years, while retirement is 25 years off, then the plan needs to consider these different time-horizons and plan accordingly.

Understanding your time horizon will impact which investment strategy you select for your portfolio. The shorter the time period to achieve a particular goal, the less risk you would want to take, because a significant market drop may impact the amount of money available to withdraw or the opportunity to benefit from a market rebound later. It is also important to give some thought to your tolerance for market volatility and loss, as well as your ability and willingness to contribute money into the plan each year. Higher returns often come with greater risk, so the trade-off is one that needs to be understood and chosen carefully.

Create a Plan

Without a plan, many investors take an ad-hoc approach to building a portfolio, focusing on acquiring popular investments rather than considering how the entire portfolio is constructed to meet their objectives. Many investors’ actions are influenced by the performance of the broad stock market, with a tendency to increase stock exposure when markets are moving higher, and reducing stock exposure when markets are falling. This behavior may result in investors buying high and selling low and may cause them to underperform market averages by substantial amounts over long market cycles. Mutual fund flows confirm this notion, with individual investors buying equity mutual funds just prior to market peaks and selling them just prior to market bottoms.


The value of diversification should not be ignored. It is important in building a portfolio to select a combination of assets that offer a reasonable chance to achieve your objective because asset allocation is responsible for almost 90% of a diversified portfolio’s return over time. Recall that from 1926 through 2013, a 100% bond portfolio returned an average 5.5% annually, while a 100% stock portfolio returned an average 10.2% each year. A 50% bond, 50% stock portfolio returned an average of 8.3% each year. But over shorter periods, the results can vary significantly from these long-term averages. For example, for the period 2000 through 2013, U.S. stocks returned an average 4.3% annually, while U.S. bonds returned an average 5.7% annually. Looking forward, the return for bonds may be lower than that achieved over the past 10 to 15 years, because interest rates are most likely to be increasing over the next decade, resulting in lower bond prices.

By diversifying across both asset classes (stocks and bonds) and also within each asset class, a portfolio’s risk is often reduced. Various asset classes and sectors of the market often perform differently from one another and diversification spreads the risk and the opportunity. Owning a diversified portfolio with exposure to many different asset classes and segments allows you to participate in stronger areas of the market and reduce the impact of the weaker areas.

If you follow these steps in setting investment goals and implement a detailed plan for achieving them, you will be well on your way to achieving financial success and peace of mind! If you would like to explore how to meet your goals or how well you are diversified, a Pinnacle Wealth Manager would be pleased to help.

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Andy Krone
About Andy Krone
As a freshman at Boston College, Andrew Krone realized he had an analytical mind, so he chose to double major in Math and Economics. It was a good fit, and he went on to combine the two fields with an MBA in Finance from New York University and a certificate in Accounting from the University of Virginia. A series of high-level positions followed, as Andrew provided financial analysis for the Ford Motor Company, was Chief Financial Officer for an environmental consulting firm, and designed executive benefit plans as the Vice President of The Todd Organization, in Washington, D.C. Just prior to joining Pinnacle in 2009, he was a partner and Chief Operating Officer at another wealth management firm in Northern Virginia. When Andrew brought his considerable experience to Pinnacle, he was tasked with directing its expansion office in Naples, Florida.