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Defining your investment goal

My Goals

Defining your investment goal

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Investing is like driving—it is best done with your eyes open.

– Andrew Beattie

Investing without a defined goal is dangerous. It often results in having too much or too little access to your money. Taking too much or even too little risk than is reasonable. Choosing the wrong investment or tax wrapper and more! All of these can result in missing out on the best investment outcome for you.

Side Note: Tax wrapper is a fancy term for how the product you choose is treated by tax authorities.

Goals are important because they make your investment decision much clearer. They also help you to remain accountable for what you’re trying to achieve.

Everyone will have their own unique goals depending on their personal circumstances. But there are some goals that most people should have.
Common goals that you SHOULD have

  1. To generate passive income
  2. To cover you/ your family on a rainy day
  3. To meet defined expenses you expect in the future

You may have other important goals, but having the above should be a minimum.

Principles of setting the right goal

  • Be specific
  • Have a defined time horizon
  • Prioritise your goals

I’ll explain this in the below example

Say you are 29 years old, with little to no savings. You decide that your first goal will be to invest to generate passive income.

Step 1: Be specific

I want to have passive income to cover my monthly expenses (say R10,000) when I retire.

Step 2: Time horizon

I aim to retire at 55 years of age. (This means you have a 20-year time horizon)

Step 3: Prioritise

You may not be able to put all your money into a retirement investment account. Especially if you do not have a minimum amount to survive a personal financial crisis. Or if you are drowning in debt that needs paying off.

Anyway, The 3 steps above have made a few things clear
You’re investing for retirement. We can, therefore, choose the right investment tax.

  • OPEN AN RA or increase your pension fund contributions.
  • The benefits here are that it will lock your money. This protects it from creditors and from your own short-term needs.
  • Will increase your overall investment return because of its beneficial tax treatment.
  • Time horizon – the more time you have, the more meaningful inflation is to your goal. You want to invest in investments that beat inflation so that your money does not lose value.

These principles apply to all your investment goals. You should always be specific about your goal, have a clear time horizon and prioritise!


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