Getting Ready to Invest

Your Time Frame

It's important to know the "when" of your investment goals, because investing for short-term goals differs from investing for long-term goals:

  • Short term, usually less than three years. The closer you get to your goal, the less risk you generally want to take with the money you've already accumulated to pay for it. This means you'll be more inclined to put your money into federally insured bank accounts or cash equivalent investments, which aren't likely to lose much value in six months or a year. You may also want to consider alternatives that don't impose potential penalties or fees for accessing your money before a maturity date. For example, a five-year CD might be safe, but the early withdrawal penalty is likely to cut into the money you are counting on for a short-term goal such as a down payment on a home you want to buy next year or a tuition payment that's due next January.
  • Mid-term, usually three to ten years. Mid-term goals are typically those for which you need time to accumulate the money. Or they may be things you're not yet ready for but are looking forward to. The more time you have, or the more flexible the timing, the more risk you can probably afford to take with your money. For example, you might want to invest some of your assets in stocks, either directly or through mutual funds or exchange traded funds, because of the potential for a higher return that would allow you to reach your goals sooner. As the time frame for those goals gets shorter, you can gradually move some of those assets into more price-stable investments.
  • Long term, usually more than ten years. For many people, the number one long-term goal for most people is a financially secure retirement. But it's also a goal with a long time horizon. When your goal is paying for college, for example, you think in terms of paying costs for four years—or perhaps a few more for a post-graduate or professional degree. But when you think about retirement, you have to think in terms of managing expenses for 15, 20, 30, or maybe even 40 years that you'll be living after retirement.

Since you'll need income for that entire period, it is important to make your money work for you, and this means earning a rate of return that outpaces inflation and allows your principal investment to grow over time. That generally means allocating a larger percentage of your portfolio to stocks and mutual funds that invest in stocks in the early stages of your investment horizon. Over time, you can gradually shift a greater percentage of your accumulated account value into income-producing investments such as bonds.


As you begin thinking seriously about what your goals are, you'll want to be specific about your time frame for meeting them. You may find it helpful to put your ideas down in writing, perhaps in a chart form like this:

  Short-Term Goals
(Less than 3 years)
Mid-Term Goals
(3 to 10 years)
Long-Term Goals
(More than 10 years)
Buy a home      
Get an advanced degree      
Buy a new car      
Pay for children's education      


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    Setting Your Objectives and Goals
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    An Evolving Timetable