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Getting SMART about Personal and Financial Long-Term Goals

July 6, 2016
Long-term horizon: Setting SMART financial and personal goals that are SMART goals are specific, measurable, attainable, relevant, and time-based.

Building a long-term investment portfolio starts with setting a specific goal. For many investors, that goal is saving for retirement, which is clearly important. The quality of your life in retirement may depend on your investment portfolio’s performance.

But there may be other goals that could have a big impact on your life. What about those? How can you go about setting and achieving goals?

First, let’s look at two separate but related types of goals: financial and personal.

Financial Goals: It’s All About the Benjamins

Simply put, financial goals are those that require money. In some cases, a lot of money.

In addition to saving for retirement, a financial goal might include saving for a down payment on a home, or even a second home. Another financial goal might be saving for education. Maybe you want to go back to school or send a child or grandchild to college. Even a dream vacation might be considered a financial goal.

Although you may be able to borrow money to achieve some of these goals, it’s usually wiser to save—and grow your savings.

So basically, a financial goal is a dollar amount required to fund or purchase something.

Personal Goals: It’s All About Aspirations

Personal goals are less about money and more about how you, your spouse, or your loved ones want to live. Think about these goals as the “Why?” behind your financial goals.

Personal goals paint a picture of what it feels like to be in control of your finances. Examples include being worry-free about income during retirement, or knowing that your children will start their careers without student loan debt.

Connecting financial goals to personal goals can be empowering. When you realize that building a long-term investment portfolio isn’t just about putting money into an account, but about improving your quality of life, you might become more motivated to define and work toward achieving these goals.

Connecting Financial and Personal Goals: SMART

At Investools®, we like to connect financial and personal goals by making sure they’re SMART goals. SMART is an acronym that describes key criteria for actionable goals: goals that are specific, measurable, attainable, relevant, and time-based.

SMART goals, financial and personal


SMART goals are specific, measurable, attainable, relevant, and time-based. Image source: Investools®. For illustrative purposes only. Past performance does not guarantee future results.

Here’s an example of a goal that’s not very SMART: “I’ll save enough money to live on during retirement.”

This goal has good intentions, but it isn’t very helpful. How much is “enough money?” And how are you going to accumulate that money? A simple statement like this sounds more like a wish than a plan.

Now, consider this example of a SMART goal:

“I’ll save at least $1 million in my 401(k) and Roth IRA by the time I retire at 65 by contributing $300 each month to my accounts and managing my investments to achieve an 8% return.”

This goal is very specific: it says exactly what the goal is and how to achieve it. This goal is measurable: the investor can monitor retirement account contributions and returns. The goal is relevant, particularly since the accounts used to define it are retirement accounts. It’s also time-based because it sets a deadline for achieving the goal.

But is the goal attainable? Well, that depends on your situation, the market, and the performance of your investments. If you have evaluated your budget and determined that you can save $300 every month, then this goal might be attainable. But even if you can contribute this amount, it doesn’t mean the market is going to cooperate, or that your investments will deliver the 8% annual return you’ve assumed.

In the next part of this series, we’ll address different return assumptions based on historical data and asset allocation. For now, you might review your long-term investment portfolios and ask: What are the goals of these portfolios, and are they SMART?

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The information presented is for informational and educational purposes only. Content presented is not an investment recommendation or advice and should not be relied upon in making the decision to buy or sell a security or pursue a particular investment strategy.

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