Investment objectives give you a target to aim for, and the right investment product is the tool that will help you reach your goal.
Long-term objectives are at least five years in the future and for most investors fall into two major categories: funding a college education for the children and building a comfortable retirement fund.
We are not a society that easily works towards long-term goals. We are much more comfortable and familiar with goals and objectives that are immediate or in the near future, which may account for why so many retirement accounts are under-funded.
You can finance a college education if you don't have enough saved, but you can't borrow your way through retirement.
Accomplishing this goal takes commitment and a willingness to sacrifice something now for a benefit in the future. Rather than picturing a bank account, picture yourself in retirement doing what you want to do.
If your dream is to sail to the Caribbean, go price the boat you want, start planning your trip, find out what it will cost to live on the islands, and so on. Even less adventurous retirement plans need a realistic price tag, which is admittedly an educated guess.
Come up with a number to make your dream a reality and figure it will cost more by the time your retire. The point is to put some emotional energy behind your objectives rather than sterile numbers.
However, keep in mind that by the time your reach retirement, you may not want to or be able to live out that dream. Always have a plan B. Health issues, family issues and financial issues can all conspire to thwart your dreams today of what your future may hold.
Short-term objectives are less than five years away, and maybe in three years or less.
These might include saving for a down payment on a house or a second home, buying a new car, or some other major expense. Short-term objectives have immediacy that may draw your attention away from far-away objectives such as retirement.
You must find a balance between those short-term needs (or wants) and your long-term goals. It's too easy to put retirement funding, in particular, on hold while other, more immediate (and fun) objectives are met. This is a mistake you will pay for in later years.
Your best chance at reaching your long-term objectives is through stocks and bonds (either individual and/or mutual fund ownership). Historically, these vehicles working together have produced the best results over long periods.
If your employer offers a 401(k) are similar plan, it is usually a good idea to participate to the maximum you can afford. Some employers offer to match all or part of your contribution up to a certain percentage of your salary.
If you have this opportunity, take it is since your employers' match amounts to free money.
Also watch the funds where your contribution goes. Those funds should match your investment objectives - more aggressive (more stocks, less bonds) when you are young and more conservative as you approach retirement (fewer stocks, more bonds).
It is important to remember that as you approach retirement, your goals moved from growth to capital preservation, in other words, making sure you don't lose money.
Stocks are not appropriate for investment objectives that are less than five years away. The volatility in the market makes them too unpredictable for short-term objectives.
Long-term bonds (ten years or more) offer higher yields, but have higher risks. Intermediate bonds in the five to seven year range may be the best approach.
For more immediate goals, short-term bonds and timed bank products such as CDs offer the best and safest way to meet investment objectives. Bonds of less than two years may not be offer much in the way of returns, but provide a safer alternative than stocks.