Unsure what your investing goals should be right now? You’re not alone

While no one can predict the future, investing is always a smart choice, and the sooner you can start, the better. “Investing in the markets is a good thing,” says David O’Leary, CFA charterholder and WealthRocket’s personal finance expert. “You’re benefiting from the power of compounding, so getting that money in early and leaving it for as long as possible is the single best way to make the most of your investment dollars.”

While your personal investment goals may shift with age due to your personal circumstances and income, Canada’s National Bank recommends starting to set aside 18% of your salary for your retirement by the time you hit 30. From that point on, the recommendation is:

• By age 35 — have the equivalent of your annual salary in savings
• By age 40 — have 2.1 times your salary in savings
• By age 50 — have 4.6 times your salary in savings
• By age 65 — have 11.3 times your salary in savings

To follow that trajectory, it’s important to start saving for retirement as early as possible. “The earlier the better,” says O’Leary. “Even if you’re in your teens and all you can afford to do is take $20 a month from your paycheque, great, do it. That’s going to compound over a long period of time and make a meaningful difference.”

Starting small with a high-yield savings account or money market account (a hybrid savings and chequing account with higher interest rates than a regular savings account) can also help grow your money simply by earning a higher interest rate. Once you have a solid base to work with, you can start thinking about investing differently for retirement.

Investing for retirement is the most common investing goal for Canadians. In fact, 55% of Canadians cited retirement savings as their top investing goal in our latest survey.

That said, there’s still a great deal of confusion regarding just how much you need to set aside for retirement. A recent survey from BMO found that Canadians now believe they’ll need a whopping $1.7 million in order to retire. While there’s no magical retirement amount given that everyone’s financial needs are different, starting to save for retirement as early as possible is key.

“Putting money toward retirement savings earlier over other shorter term goals is a good idea,” O’Leary says. “A lot of people under estimate how beneficial that can be.”

Investors may have a mix of short- and long-term goals, which they can always revisit as their circumstances and needs change. A good rule of thumb is to look over your portfolio once a year, or ahead of a major life event, like if you’re anticipating a child or purchasing a home. This allows you to reassess your investments and maximize your savings.

While you may be primarily saving for a short-term goal, you should still make an effort to contribute to your retirement fund. Even minimal contributions will add up considerably over time.

“You’ll be very grateful down the road if you have a bigger nest egg than a smaller one,” O’Leary continues. “What’s happening in the markets when you retire can dramatically shorten how long your money will last. Living for that long with that sort of financial insecurity is a real awful feeling.”

When deciding on your investing goals, it’s important to determine whether you’re saving for a short-term investment (one to three years), long-term investment (seven years more), or somewhere in between (four to six years). When you need to withdraw your funds will help determine which investment period you want to focus on.

Short-, medium-, and long-term investment strategies each have their pros and cons. But a balanced portfolio should combine all three strategies. “Ideally you need to balance them, but they’re dependent on what your goals are for your money,” says O’Leary. “This is exactly why there’s no such thing as ‘What’s the best investment?’ The only question is, ‘What’s the best investment for me, given what my goals are?'”

If you’re saving for a short- or medium-term goal, such as buying a car or going back to school, you want to invest in something conservative and low risk, to ensure the money is there when you need it. A Guaranteed Investment Certificate (GIC) is a good option for short- or medium-term investments and is one way to generate passive income. As O’Leary explains, investing in a short-or medium-term GIC is “probably not going to pay a really great rate of return, but the trade off is that it’ll be very likely for you not to lose any money.”

Money market mutual funds can also offer a low-risk way to invest in liquid cash or cash equivalents in the short or medium term.

If you’re saving for a long-term goal, you have more flexibility in your investment strategy and can take more risks that may offer a greater reward. Investing within a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) and purchasing mutual funds, which is a collection of assets that can include things like government bonds or a variety of stocks, can be beneficial in the long run as the market ebbs and flows; if you need your funds at a particular time and the market happens to be down, you may be in for a major loss. However, if you have a long-term goal, you can wait out the potential dips in the market, as these investment tools are meant to grow over a longer period of time.

“If you’re going to invest in things that have more volatility, they can generate a higher return, but they’re going to have more risk,” explains O’Leary.

Determining your personal risk tolerance is another important aspect to consider when setting your investing goals. In general, you should be risk averse for short-term investments and medium-term investments. Whereas with long-term investments, you can be more flexible in the risk level you’re willing to take on, depending on your goals and overall financial picture.

“The more time you have, the more risk you can afford,” says O’Leary. “The less time you have, and the more you need that money for something really important in your life, the less risk you can afford.”

While some investors favour an active approach to investing and do their best to predict where the market is going, O’Leary cautions against that method, recommending that investors take a long-term view.

“Your decisions about investing should really have nothing to do with what your expectations are for the stock market or the economy,” he says. “The best returns come when people least expect it. Waiting is most often the best thing that you can do.”