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Turning financial goals into reality

July 19, 2013

Hopes and dreams form in our hearts. Goals form in our heads. And turning a dream into a goal requires forming a plan.

Vanguard believes that when your goals are concrete and measurable, you improve your odds of reaching them. That's because before you can determine the best way to invest, you need a clear fix on exactly what you're investing for.

For many people, no financial goal feels more daunting than retirement. It typically requires the most money, not to mention patience. That's why you might want to start right there—by drawing up a concrete plan for meeting your biggest goal.

How to create a plan

Everyone's route to retirement will be different, because everyone's needs, dreams, comfort zone, and circumstances are different. What might a concrete plan look like? Here's a hypothetical example:

My ultimate goal: Have $600,000 in savings by the time I reach 65.

My realities:

  • Only $60,000 saved so far.
  • Just turned 32, so have 33 years to reach my goal.
  • Already have emergency fund and paid off credit cards.
  • Currently saving 6% of my gross pay in retirement plan, or about $250 a month.
  • Don't sleep too well when the stock market plunges.
  • Still want to give my money a decent shot at long-term growth.

My commitment:

  • Right away: Start saving 8% of pay, or about $330 a month.
  • Next year: Boost that to 9%, or $375.
  • If I get a raise next year, contribute that too.
  • Over next five years: Work my way up to saving 15%.

My strategy:

  • Stick with low-cost, diversified index funds.
  • Keep half my retirement savings in stocks.
  • (And keep half that amount in a global stock fund.)
  • Keep the other half of my total retirement savings in bonds.

My triggers:

  • Once a year, revisit my stock/bond mix.
  • If my stock holdings exceed 55% of the total value of my account, sell some stock shares and buy some bond shares to rebalance back to 50% stocks-50% bonds.
  • Retake the Vanguard Investor Questionnaire every year.
  • If my questionnaire results reveal that my realities have changed, I'll consider a different mix of stocks and bonds.

*This hypothetical scenario doesn't represent any specific investor or the returns on any particular investments.

Making the plan your own

Why does it help to spell everything out like this?

When you put your specifics down in black and white, your plan reflects you: your wishes, your limitations, your feelings about potential risks and rewards. By making it yours, you increase the odds that you'll stick with it.

And a plan with specific targets and tactics gives you something to focus on. Focus can be a big help when markets are zigzagging. Otherwise, you could get swept up in the mood of the moment. Or you might end up chasing the latest hot investment or copying some other strategy that gets you caught up in a buy high, sell low spiral.

Also, a concrete plan shifts your attention from this or that individual investment to the big picture—your overall strategy and needs. Vanguard research shows that investors often become enticed by the past performance of various investments and switch their money from one to another.

By losing sight of the big picture, investors can accumulate various investments that don't mesh well with their situation.

Balancing multiple goals

This planning framework can work for life's other big financial goals—college, a wedding, buying a house.

Different goals will require different strategies. For instance, you likely wouldn't want to invest next year's vacation fund in the stock market. Because of their volatility, stocks are inappropriate for short-term goals.

Drawing up a separate plan for each goal can also give you a more realistic idea of how much money you'll need to set aside—and help you decide which takes priority. Generally, saving for retirement trumps all other goals. Not only does retirement typically require the most money, it also can't be funded by borrowing the way that, say, a house or an education can be.

Staying down to earth

Whatever your goals, be realistic, both about your own fortitude when it comes to saving faithfully and investing for the long term, and about the markets.

For instance, if meeting a goal depends on your adopting a Spartan lifestyle, make sure it's a decision you can live with over the long haul.

Likewise, if your money would have to grow very fast, you may want to weigh how much risk you want to take. Betting on a booming market—or that you'll find some investment that will outperform the market—is not the most likely road to success.


  • All investing involves risk, including the possible loss of money you have invested.
  • Bonds and bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
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