If you plan to start investing, it’s a good idea to have a purpose for investing. Your purpose may include many factors- but if you don’t have any reasons for investing you’re going to go about it with your eyes closed, and you should never dive into unknown waters blindly!

In order to become successful with investing, you need to have a purpose for investing. Without working towards a specific goal, it’s hard to make decisions regarding what to invest in and difficult to monitor your level of success.

There are two main reasons for investing, for most people. They include investing for the retirement years and investing to meet certain financial goals.

Short Term Investing

When most people think about investments, they think about long term. However, investing is just as important for your current situation as well as determining what your future financial situation will be. Buying a new car, saving for a dream vacation or new home are all viable reasons for investing money. Short term investments require different strategies than long term investments, which is why it’s important to understand your purpose for investing.

If you want to use investments as another stream of income to help supplement your current salary, or to assist you in buying things you couldn’t otherwise afford- you will want to have an investment portfolio that is mixed with short term and long term investments that pay dividends, and some lower risk, high yielding bonds.

If you have a goal to take your dream vacation next year, or purchase a new computer in the new year, then you will need to first determine how much money you need for that purpose. Once you know how much you need and when you want it by, you can develop a strategy for investing that helps you meet those specific goals.

Short term investments are challenging. Often, you’re not starting with very large sums of money, so it’s possible that you may want to look into higher risk investments than you would if you were investing towards a long term goal (such as retirement). Higher risk investments pose the greatest possibility for a high return on your investment; but they also provide the greatest risk of losing some or all of your investment. Choose wisely!

Long Term Investments

Many people don’t believe our current retirement pension program will be there when we need it. There is a very real fear that there will not be retirement funds for individuals who are working and contributing to the pension system now, when they retire. Wise investors are choosing to plan for their own retirement with long term investment strategies.

The sooner you start investing for your retirement, the more money you will be able to create! You can choose higher risk investments than you could if you waited until you were closer to retirement, and combine them with a diversified portfolio that allows you to minimize those risks with lower risk investments.

When you start investing for retirement later in life (or another long term goal), you have to use less risky investments, such as bonds and debt securities in order to minimize the chance that you lose some of your investment. These lower risk investments have much lower rates of return.

When you invest for the purpose of saving for retirement, you will probably have an investment portfolio that is a mixture of stocks, bonds, money markets, debt securities and index funds. As you age, you will start moving your investments into lower risk and guaranteed investments to be sure you preserve your money for your retirement.