Investment goals aren’t static; they should evolve as your financial situation, life circumstances, and market conditions change. Periodically revisiting and adjusting your investment goals is essential to staying on track and ensuring that your portfolio aligns with your long-term objectives. Whether you’re planning for retirement, saving for a home, or building wealth, regular reviews help you adapt to changes in income, expenses, or risk tolerance. Here’s how to revisit and adjust your investment goals effectively over time.
Why Revisiting Investment Goals Is Important
As you progress through different life stages, your financial priorities shift. A well-structured investment plan that worked five years ago may no longer be optimal for your current needs. Factors like marriage, having children, career changes, and approaching retirement all impact your financial goals. Regularly reviewing your investments helps to:
• Align with Life Changes: Major life events such as a job promotion, marriage, or the birth of a child may require you to adjust how much you’re investing and the type of assets you’re holding.
• Adjust for Risk Tolerance: Your risk tolerance may change as you age. Younger investors might seek aggressive growth, while older investors often prioritize capital preservation and income generation.
• Keep Pace with Market Conditions: Economic changes and market volatility may affect the performance of your investments. Reviewing your goals allows you to make strategic adjustments based on the current market environment.
Key Times to Revisit Your Investment Goals
1. Annually
Conduct a thorough review of your portfolio at least once a year. This ensures you can track your progress toward your financial goals and make adjustments as needed.
2. Major Life Events
Significant events like getting married, buying a house, having children, or changing jobs often require adjustments to your financial plan. These milestones may increase expenses or alter your income, prompting the need for recalibration.
3. Approaching Retirement
As you get closer to retirement, it’s critical to shift your focus from growth to capital preservation and income generation. Revisiting your goals as you near retirement allows you to adjust your portfolio to minimize risk and ensure you have enough funds to cover your retirement needs.
4. Market Changes
During periods of significant market volatility, like economic recessions or stock market downturns, reassessing your portfolio can help you navigate risks and capitalize on opportunities.
How to Adjust Your Investment Goals
1. Reevaluate Your Financial Objectives
Begin by reassessing your short-term and long-term financial objectives. Are you still on track to achieve your original goals, or have your priorities shifted? For example, if you were saving for a home and have now purchased it, your focus may shift to saving for retirement or education expenses for your children.
2. Review Your Portfolio Performance
Examine how your investments have performed over the past year or period. Are your returns meeting expectations? Identify which assets have underperformed or overperformed and adjust your asset allocation accordingly. For instance, if stocks have outperformed and now make up a larger portion of your portfolio than intended, you may want to rebalance by selling stocks and buying bonds or other conservative investments.
3. Rebalance Your Asset Allocation
Over time, the market value of different assets in your portfolio will change, causing your asset allocation to shift. Regularly rebalancing your portfolio helps maintain your desired risk level. If your target allocation is 70% stocks and 30% bonds, but stock prices have risen, pushing your portfolio to 80% stocks, consider selling some stocks and reallocating to bonds.
4. Adjust Contributions
As your income changes, consider adjusting how much you contribute to your investment accounts. For example, if you receive a raise, increase your retirement contributions or allocate more money toward your brokerage account. On the other hand, if you’re facing unexpected expenses, you may need to temporarily reduce your contributions.
5. Update Risk Tolerance
Risk tolerance evolves with age and life circumstances. If you’re younger with a long time horizon, you might focus on growth-oriented investments like stocks. However, as you get closer to retirement, you might prefer a more conservative approach, favoring bonds and dividend-paying stocks that provide stable income.
6. Factor in Inflation and Taxes
Inflation and taxes can erode the purchasing power of your investment returns. When revisiting your goals, ensure that your projected returns account for inflation. Additionally, consider tax-efficient investments or strategies, like contributing to tax-advantaged accounts (e.g., IRAs or 401(k)s) or municipal bonds for tax-free income.
Tools to Help Track and Adjust Investment Goals
1. Financial Planning Software
Use financial planning tools like Personal Capital, Mint, or YNAB (You Need A Budget) to monitor your goals and track your investments. These platforms provide insights into your overall financial health and help you make informed decisions when adjusting your goals.
2. Robo-Advisors
Robo-advisors, such as Betterment or Wealthfront, offer automated portfolio management. They can help you rebalance your investments and adjust your asset allocation based on your risk profile and investment goals.
3. Professional Financial Advisors
A financial advisor can provide personalized advice and help you make strategic adjustments to your investment plan. If your financial situation has become more complex due to significant life changes, an advisor can help you navigate these challenges and stay on track.
Case Example: Adjusting Goals Over Time
Let’s say you’re 35 years old and you’ve been saving for retirement with a portfolio focused primarily on growth stocks. Over the years, your portfolio has performed well, but now you’re thinking of buying a home and starting a family. After reviewing your financial goals, you may decide to:
• Reallocate a portion of your stock investments into a safer bond fund to reduce risk.
• Open a separate savings account to build a down payment for your home.
• Start contributing to a 529 plan for your child’s future education.
• Increase your emergency fund to cover potential new expenses related to your family.
By adjusting your investments to fit these evolving life goals, you ensure that your portfolio remains aligned with your current needs.
Conclusion
Revisiting and adjusting your investment goals over time is crucial for long-term financial success. As your life circumstances, risk tolerance, and market conditions change, regular reviews help ensure that your portfolio remains aligned with your financial objectives. By assessing your goals, rebalancing your portfolio, and adapting to new opportunities or challenges, you can stay on track to achieve financial security and grow your wealth.
