When it Comes to Investing, Let Your Goals be the Guide

As an investor, there are factors like the economy and markets that you can’t control. But the key to successful investing – staying true to your long-term goals – is within your grasp.

Having a successful investing strategy isn’t about reacting to market swings or trying to determine where the rate environment may be headed. It’s about taking a proactive, objective approach to your investment decision-making regardless of what may be happening at any given point in time.

Patience is a critical factor to building a successful investment strategy. On average, your assets will spend much more time benefitting from a bull market than they will be subject to a bear market, so it’s important to focus on a goals-based approach that takes into account your risk-tolerance and time horizon.

But how do you build that big picture strategy in the first place? If you’re just getting started or already underway, here are 5 tips to create a comprehensive investment strategy:

1. Match Your Investments to Your Goals

There is no one-size-fits-all approach when it comes to building an effective investment strategy - yours should be based on your personal goals. As a first step, it’s important to determine your short and long-term financial needs and how much that will cost, so you can select investments that match your objectives. For instance, you may have a short-term goal of using your assets for a down payment on a home or automobile, with a longer-term goal of planning for retirement. Knowing your goals and objectives will help you choose the appropriate investment mix for your portfolio.

For example, in the above scenario, you might choose to maintain a portion of your investable assets in a lower risk option that’s focused on asset preservation like a high-yield savings account or certificate of deposit (CD) to satisfy your short-term down payment need while investing your remaining assets in vehicles that are positioned for longer-term growth to satisfy your retirement goal.

Building an investment portfolio is an opportunity to be proactive toward achieving your goals. It’s important, though to also have a financial plan to evaluate what you’ll need so you can make an informed decision about the right investments that can help you get there.

2. Look to Your Time Horizon

Just as your investment strategy should take into account what your short- and long-term goals are, you will also need to consider how much time you have to participate in the market overall. Known as your investment time horizon, the types of investments you’ll want to consider will be largely dependent on your ability to tolerate risk as well as when you’ll need to start realizing a return on your investment.

If, for instance, you are within five years of retirement, you may want to lower your risk of susceptibility to market swings by choosing a more conservative investment portfolio heavy on bonds or other fixed income assets. Conversely, if you have a longer investment time horizon of a decade or more, you can likely afford to invest more aggressively because you will have time to recover from any market downturns.

When contemplating your investment time horizon it’s important, though, to think of retirement as a new lifestage, rather than an end goal. With many people spending two decades or more retired from the workforce, that’s time that needs to be accounted for in a financial plan. It’s a time that will likely require reallocation of investments to more risk averse and predictable income producing vehicles, so you can achieve the lifestyle in retirement that you’ve worked so hard to earn.

3. Diversify Your Portfolio

In the span of time you will invest, market volatility is inevitable. It’s just part of a normal market cycle. The key is to invest in a diversified portfolio from the outset and continue to diversify your investment mix as you add additional assets to your portfolio. Your portfolio should include different asset classes and investment vehicles to buffer against market swings and to avoid being too heavily invested in any one industry or commodity. In a diversified portfolio, each asset class or investment is meant to serve a specific purpose. A good financial plan anticipates ups and downs, and includes diverse investment types that complement one another and perform under differing conditions.

While investing heavily in stocks is generally an effective way to realize significant long-term gains on your investment, you can also consider bonds or other fixed-income opportunities as a hedge to the risks of market volatility. Adding these lower-risk investments – including treasury bonds, municipal bonds, CDs - may yield a lower return in the long run, but can be a short-term safety valve that provides reliable income and takes advantage of periods of higher interest rates.

4. Seek Professional Guidance

You won’t be able to predict exactly what the markets will do year to year or how long downturns will last. What you can do is prepare broadly for all scenarios by building a portfolio that takes advantage of growth opportunities and has a hedge built in to persevere through periods of volatility.

Financial planning is a long-term process and a financial advisor is a vital partner to helping you achieve your financial goals. Your financial advisor can work with you to identify and help achieve specific goals for your money while also serving as support during rocky economic times. You can count on your financial advisor to:

• Help create a financial plan with a needs assessment and short and long-term goals;
• Recommend an investment selection and asset allocation strategy that properly accounts for your risk appetite and time horizon;
• Advise on any necessary adjustments to account for changes in goals, life circumstances, or to help ensure that investments remain allocated to correct investment vehicles over time;
• Provide guidance on ways to lower taxable income by maximizing contributions to tax-advantaged investment accounts;
• Introduce digital tools to help you monitor the performance of your investments and provide a holistic view of your finances with account aggregation;
• Compile a comprehensive view of where you’re invested and what opportunities you may have for account consolidations or rollovers; and
• Help provide reassurance during volatile markets and – if necessary – adjust your investment mix.

5. Stay the Course

It's important to create and stick to a financial plan. Your investments won’t work like a lottery ticket where a lucky scratch can provide an instant return. Successful long-term investing requires patience, trust and discipline. Being proactive about clearly outlining short and long-term goals for your money; knowing when you need to realize a return on your investments; and building a portfolio of diverse investments and asset classes all with the help of a financial advisor, can help move you toward a secure financial future.

It’s not always easy to see the big picture when you get started with investing and it’s certainly possible to get distracted along the way. But it’s a good plan to let your long-term goals be the guide and stay the course to achieve them.

When you need to plan for your financial future, do it with your long-term goals in mind. A PNC Investments Financial Advisor can help ask the questions, build a portfolio and assist in making those goals a reality. Call PNC today to learn more about what an investment advisor can do for you.