4 Investment Considerations (2024)

You’ve dipped your toes in the investment pool, and now you’re ready to dive in. Or maybe you’ve been swimming laps for a while. Before you move forward, put some time and effort into creating or reviewing your investment strategy. More specifically, consider these four factors, and how they might need to be altered for optimal success throughout your time as an investor.

1. Goals

Your goals or reasons for investing will probably change as the years go by, and expanding or changing your goals should be reflected in your investment strategy because some investments can be more beneficial or tailored to specific goals. For example, you may start investing because you’re worried about your 401(k) building enough retirement income, so you open an IRA or a mutual fund specifically for later years. When you start thinking about kids, you might add the goal of investing in a college fund, like a 529 plan.

How will you use the returns from your investment? Which investments are geared towards that objective? Assessing your goals will give you a better idea of what to focus on when it comes to investment options, and which options will best meet your needs.

2. Time Frames

The timing for your goals – and your life in general – play a big part in the success of your investments. The amount of time you have between when you invest and when you need the returns (to meet your goals) will determine what kind of investment you make and how much risk you take.

Ask yourself how much time you have to invest before cashing in the returns. Do you have a short term goal (less than five years), a long term goal (over ten years), or somewhere in between? For example, if you have a goal of building retirement savings by investing and you’re twenty years away from retiring, you may choose to make twenty years your time frame.

Then, consider your investment options and whether or not they have the ability to perform well within your goal’s time frame. If your investment choice is more volatile, will you have enough time to recover and still meet your desired objective?

3. Risk Management Strategies

While not all risk can be avoided, there are steps you can take to minimize the exposure to your portfolio and work towards financial success. As you build an investment portfolio, consider the different strategies to managing risk: asset allocation, diversification, dollar cost averaging, etc. While there are many parts to each strategy, here are a few questions to get you started.

Are you diversifying your portfolio across several different asset classes? Are you contributing a set amount every month towards your investments? Is your current strategy for buying and selling helping you achieve a lower average cost per share?

4. Tax Considerations

Knowing your tax responsibilities means no surprises later on. For example, if you annually invest $3,000 in a Traditional IRA with an 8% rate of return for twenty years, and you calculate how much it will yield at retirement (about $148,000) but don’t factor in paying taxes on withdrawals, you may be pretty disappointed when you make the first withdrawal, and it’s lower than expected. If you are in a 28% tax bracket, that $148,000 IRA would actually be worth about $106,000 after paying taxes.

Some investments are taxable or have partial taxes, and some are tax deferred. When you invest, be aware of your tax responsibilities and plan how you will meet those expenses. Factor in the cost when you’re calculating how much to invest and projecting ROI.

Taking into account each of these four factors can help you build a better investment strategy. Still fuzzy on how to incorporate each part? Talk to your Money Coach. Money coaches cannot provide specific investment advice, but they can help you develop important goals, determine time frames that align with your lifestyle, decipher your level of risk, and help you consider taxes, and they’ll show you how to access investment calculators. Call 888-724-2326 and feel better about your investment strategy.