Is Investing a Good Option for Meeting My Mid-Term Financial Goals?
Investing for retirement is one thing, but what about investing for mid-term goals, like a down payment on a home or a wedding?
Contributing Writer at Tally
October 6, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.
You may have several goals when you consider financial planning for the future. Your immediate short-term financial goals could include saving a down payment for a reliable car, lowering your credit card interest rates or establishing a retirement account (like a traditional or Roth IRA or a 401(k)). Your long-term financial goals may include saving for retirement and planning to be financially independent in 30 years.
For short-term goals, investing is typically too volatile. However, longer-term goals have more risk tolerance, making investing an option.
What about mid-term financial goals? Should you invest to meet your medium-term financial goals or stick your savings in a more steady place like a savings account? Learn more below.
What is a mid-term financial goal?
For starters, it’s helpful to define exactly what a mid-term financial goal is.
Generally speaking, a mid-term financial goal is an upcoming expense that will take place somewhere in the next three to 10 years.
As for specific mid-term financial goals, they can be just about anything you’re saving money for. A few mid-term financial goal examples include:
Saving for a house down payment in five years
Building your dependent’s college education over eight years
Planning a dream vacation in six years
Organizing a wedding in four years
Building an emergency fund over four years
Improving your credit score by several hundred points
Paying off your remaining student loan debt in five years
Becoming completely debt-free in six years
Increasing your retirement savings to a certain milestone in five years
Reasonable mid-term financial goals can be anything you value and want to save for. They’re highly specific to your lifestyle and goals.
Should you invest for mid-term financial goals?
Should you invest money for your medium-term financial goals, or should you simply keep the funds in a checking account? That answer depends on many different factors.
Some questions to ask yourself before investing include:
How far out are your personal financial goals? The savings plan for an expense two years away is probably different from an expense eight years away.
Are the goal dates set in stone, or can you delay them if needed? You can be more aggressive with your investment strategy if you’re flexible with when the expense comes due.
What is your risk tolerance? Investing carries risk. If you’re not comfortable with the risk of losing money, it’s wise to choose more conservative investments.
Do you need a high return to meet your goal? If you save enough each month, you won’t necessarily need a high rate of return to meet your personal finance goals.
In addition to considering these questions, you may want to meet with a financial advisor to receive investment guidance tailored to your situation.
Investment strategies for mid-term financial goals
What are the specific investment types to consider if you decide to invest?
There are a wide variety of investment options out there. The list below covers some of the most popular ones.
Savings accounts might not be sexy, but they’re reliable, simple and lower risk. In today’s interest rate environment, most banks pay very little interest on savings accounts. However, you can look into high-yield savings accounts (HYSA) or money market accounts, which may pay slightly higher interest on your savings.
Certificates of deposit
Otherwise known as CDs, certificates of deposit are like short-term loans you make to your bank. You deposit a certain amount of money for a specific time, and the bank pays you a higher interest rate than you would get with a normal savings account. CDs are available in terms ranging from three months to five years, but you can’t withdraw the funds before the end of the agreed-upon period without penalties.
Bond index funds
Bonds are financial products sold by governments and private companies. You can buy a bond for a set amount of money, and the seller agrees to pay you back in a set time frame — with interest along the way. Individual bonds are risky, as the company or government could go bankrupt if they fall into poor financial health.
Bond index funds are a somewhat less risky alternative, as they allow you to buy small pieces of hundreds of different bonds at once. One example of a bond index fund is BND, an exchange-traded fund (EFT) from Vanguard.
Stock index funds
Stocks are shares in a specific company. Basically, you buy stock in a given company, own a small piece of that company, then receive dividends and (hopefully) see your stock grow in value.
Stock index funds allow you to purchase a basket of hundreds of stocks all at once, which helps reduce your level of risk. One example of a stock index fund is VOO, an ETF from Vanguard that includes shares in the 500 largest publicly traded firms in America.
Target date funds or all-in-one funds
All-in-one funds are exchange-traded funds (ETFs) or mutual funds that typically invest in a combination of stocks and bonds. They can be very conservative (90% bonds, 10% stocks) or very aggressive (90% stocks, 10% bonds) — and everything in between.
Some are available as “target date funds,” which get more conservative as the target date approaches. For example, a 2040 target fund would be reasonably aggressive today but would ramp up its percentage of bonds each year, reducing risk as 2040 approaches.
Find the right mix for you
Everyone has their risk tolerance, goals and investment preferences. Ultimately, your financial decisions are up to you. Again, depending on your financial situation, you can also speak with a financial advisor or financial planner to receive customized advice.
If you’re stuck, consider this: It doesn’t need to be an all-or-nothing approach.
In other words, you can employ a mix of investment strategies to help meet a variety of financial goals, such as:
Investing in the stock market to hopefully improve your returns
Investing in bonds to receive moderate returns with less volatility
Investing in CDs or high-yield savings accounts to have risk-free investments
Keeping funds in savings/checking accounts for unexpected expenses
Mid-term financial goals need planning too
While short-term and long-term financial goals tend to get most of the attention, mid-term financial goals need attention too. Because you can tolerate more risk than with a short-term goal but not as much as a long-term goal, you can aim to find a balance of low- and medium-risk saving and investing options. It’s all about finding that risk mix you’re comfortable maintaining.
When taking steps to improve your financial future and strive for financial independence, remember it’s just as important to pay off your debt as to invest.
The Tally†credit card debt repayment app can help in this situation. Our app helps you manage your credit card payments, and Tally offers a lower-interest personal line of credit, allowing you to pay off higher-interest credit cards efficiently.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.