Saving for Your Goals

Kids with chalkboardWhether you’re saving for a child’s education or a new home, there’s a strategy to it. Consider your time horizon and risk tolerance before investing to help ensure you achieve your goals.

Create a savings plan

Are you thinking about buying a home, taking a dream vacation, or buying a new car? Just like saving for retirement, there are several factors you should consider when saving for a major purchase or other short-term goals.

  • First, determine how much money you will need for your objective — vacation, car, house — so that you can develop a plan.
  • Second, make sure your portfolio fits your complete investment time horizon. Your time horizon is the number of years you have to invest before you need to use the money, and how many years you'll need that money to last. For different investment goals, we place time horizons into three overall categories: short-term (one to three years); intermediate-term (three to 10 years); and long-term (10 years or more).

Consider risk and diversification

Saving with low risk vehicles with moderate returns, like money market accounts, offers you more liquidity — meaning you can get to your money faster. That's why these accounts are often better for meeting short-term savings goals like a car or a vacation.

Retirement, college savings and nest eggs are more likely to fit into the long-term goals category. If you can ride out periods of market volatility, you might consider allocating some of your investments to equities for the long run.

The most widely recognized strategy of managing risk is diversification — investing in a variety of asset classes. Please keep in mind that even though diversification is recommended, it’s no guarantee against losses.

Choose the right investments for your goals

There are several products and solutions that can help you achieve your various goals, both long term and short term. The following are some examples:

Example: Saving for college
You want your son or daughter to have the best higher education possible, but you also know that tuition costs are on the rise. There are plans specifically geared toward college savings. Many of these solutions also offer tax savings.

Example: Saving for a new home
You can take up to $10,000 from your IRA — without an early withdrawal excise tax — for a first-time home purchase for you or your spouse, or children, grandchildren, parents, or grandparents of you or your spouse (check with the IRS for definitions of other qualified distributions). You may need to consider income taxes, depending upon the type of IRA account you have. Mutual funds and after-tax annuities are two other investment vehicles that can help you save for a house, or any other long-term goal.

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