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4 Questions To Help You Invest For Your Financial Goals

There are many factors to consider when investing for the first time: Use these four questions as a guide to help you choose the best investment strategy for your financial plan.

Articles by Tania Brown, CFP®
By Tania Brown, CFP® Financial Coach, Passion to Impact Published Jan. 04, 2021
Published Jan. 04, 2021
6 min read

Warren Buffet’s definition of investing is, “laying out money now, in expectations of receiving more money in the future.”

Investing starts with ensuring that nothing gets in the way of you “laying out money now.” This means having a solid financial foundation by doing the following:

  1. Saving three to six months’ of expenses in an emergency fund, so your savings, not investments, cover unexpected costs.
  2. Paying off high-interest debt, so you are making money from companies rather than paying interest to companies.
  3. Contributing enough to your 401k plan to at least get a match from your employer, if you’re offered one: get all the free money you can!

Once your financial foundation is in place, use the four questions below as a guide to help decide how to invest your money:

1. What’s the goal for the money?

Your goals should always inform what you do with your money, but understandably it can be difficult to envision long or short term life goals as events that need to be saved for.

Here are some examples of life events that can be translated into financial goals:

  • Short-term: Wedding gifts, vacations, a new laptop, an engagement ring.
  • Long-term goals: A house downpayment, future college education, retirement.

Envision all of your possible goals that may put you into debt if you didn’t begin saving for them now. Once you have a list, you can move on to determining where and how they will be invested.

2. When do you need the money?

Recessions, on average, happen every five years. For this reason, some conservative investors decide to keep money needed in five years or less out of the market, while moderate to aggressive investors typically shorten this time period.

For financial goals with a time horizon of five years or less, here are some alternatives to high-risk investments where you can save your money:

  1. High-yield cash accounts: An excellent alternative to a standard savings account from your bank, high-yield cash accounts typically earn you more, have more flexible transfers, and allow you to easily access your money. Betterment’s Cash Reserve helps you earn a variable rate of 0.40% APY,* is FDIC-insured for up to $1,000,000† once deposited at our program banks, and has no minimum balance.
  2. Low-risk investment accounts: Consider investing your shorter-term goals in a low-risk portfolio instead. Betterment offers various low-risk ways to invest, and we give you the opportunity to choose any allocation, even portfolios with little-to-no stock exposure. This strategy can be useful if you are comfortable with the risk statistics provided to you while opening a portfolio and selecting your stock-bond allocation mix.

If you decide you do want to invest in the market, consider these options for your money:

  1. Stocks: An investment that represents partial ownership of a company.
  2. Bonds: An investment in which you lend money to a company for a fixed rate that gets paid to you for a specified period.
  3. ETFs: Basket of investments (can be stocks, bonds, or a combination of both) that typically tracks a part of the financial market, called an index. The index can be made up of the largest companies in the U.S., such as the S&P 500.

When you open an investment goal Betterment will recommend a portfolio for you when you deposit, based on your goals. Betterment will also handle the trading and rebalancing for you, so that you don’t have to.

3. How many highs and lows in the market can you stand?

Everyone thinks they are an aggressive investor until the market drops: your real risk tolerance is how you feel when your investments drop by 30%.

Below are three types of risk tolerance:

  • Conservative: Values preservation of funds; can’t handle any fluctuations.
  • Moderate: Values stability of funds; sees market volatility as a necessary evil.
  • Aggressive: Values growth of the funds, can handle wild fluctuations for the price of growth.

4. How knowledgeable do you want to be about investing?

People typically fall into three basic investment styles: 

  • DIY: You put in the time to research, create, and monitor an investment portfolio. Most importantly, you can manage your emotions during up and down markets.
  • Do it for me: You partner with a professional to give you financial advice and manage your portfolio.
  • Do it with me: You tap into experts’ knowledge and research to help you select investments based on your needs.

Determining how much you want to be involved with your investments and their performance will help you determine who to partner with (if at all) to help you meet your financial goals.

If you fall into this last bucket, Betterment can help you meet your financial goals: as your money grows and your priorities change, Betterment’s advice evolves and helps you stay on track.

Don’t forget that the most critical part of investing is getting your finances in order: if you decide to invest to meet your financial goals, having your finances in order means you won’t have to cash out your investments to cover unexpected expenses.

Use these four questions as a guide to help you choose the best investment strategy for your financial plan.

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Cash Reserve

*The annual percentage yield (“APY”) on the deposit balances in Cash Reserve (“Cash Reserve”) is and represents the weighted average of the APY on deposit balances at the banks participating in Cash Reserve (the “Program Banks”) and is current as of . This APY is variable and subject to change daily. See Current APY. Deposit balances are not allocated equally among the participating Program Banks. A minimum deposit of $10 is required, but there is no minimum balance required to be maintained. The APY available to a customer may be lower if that customer designates a bank or banks as ineligible to receive deposits. APY applies only to Cash Reserve and does not apply to checking accounts held through Checking. Cash Reserve and Checking are separate offerings and are not linked accounts.

See Betterment’s Form ADV Part II and Terms and Conditions for additional information, including details of the deposit allocation methodology.

†Betterment Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients’ funds are deposited into one or more banks (“Program Banks“) where the funds earn a variable interest rate and are eligible for FDIC insurance. Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities through Betterment LLC and Betterment Securities. Cash Reserve should not be viewed as a long-term investment option.

Funds held in your brokerage accounts are not FDIC‐insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC‐insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details. Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 (or $2,000,000.00 for joint accounts) of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 for each insurable capacity—e.g., individual or joint—at up to four Program Banks). Even if there are more than four Program Banks, clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000.00 (or $2,000,000.00 for joint accounts). The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured. For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.

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