Getting Ready to Invest
Before you can choose investments to meet a particular goal, you need to have an idea of what the goal will cost. It's relatively easy to anticipate the costs of short-term goals, since they probably won't be significantly different from what they are today.
Estimating the costs of goals that are further in the future, especially major ones like college tuition or retirement, can be a bit trickier. Calculators and other tools available on government, financial, and college planning Web sites can help you gauge these costs. It's a smart idea to try out several, since different tools will likely provide somewhat different results.
For goals that are more than a few years away, you also need to consider the impact of inflation on your assets—something you can figure out using an online calculator. Historically, inflation has averaged about 3% per year. And the costs of tuition at both public and private colleges typically rise even faster—often double or more the rate of inflation. That means you'll have to earn enough on your investments to offset these rising costs.