Two people planning out their goals on sticky notes

When you open up an account with a new robo advisor, you may need to tell your brokerage why you’re investing.

The challenge: You might not always readily pinpoint why you want to invest — you just know that your dad or your eighth-grade math teacher told you it’s a good way to plan for your future. (And it absolutely can be!)

But having a concrete “why” may help you plan out your portfolio, especially if you’re working with a broker. Remember, it’s normal to have more than one objective when you invest — you might have a handful!

Consider Your Goals

Let’s go over some possible goals you can identify before you start investing.

Primary Objective

Your primary objective when investing identifies your overarching investment purpose and what you’d like to achieve. For example, you may identify an exact purpose for savings, such as:

Or you may want to choose a more general route, such as:

Your primary objectives should be personal to your specific needs and financial situation.

How do you decide on your primary objective, particularly when you have many different goals? You may say, “I need to save for retirement, college and a down payment for a house. How do I do all that?”

That’s a great question, and you may have many objectives — most investors do.

Time Horizon

Consider your time horizon as well. When do you think you’ll need the money you’ve invested? For example, you may decide you’ll retire when you’re 60. If that’s 20 years away, you’ll want to let your broker or robo advisor know to help you invest your money with that specific timeline in mind.

On the other hand, if you’ll need your money in just a few years, you’ll have a much shorter time horizon. In that case, your investment approach may look much different. In general, the longer your time horizon, the more risk you may choose to take on in your portfolio, but it also depends on your own risk tolerance. If you choose a more aggressive portfolio, you might opt to invest in more stocks. Investing in bonds might indicate a less risky (and therefore, shorter) time horizon.

Here’s one way an investor might look at their time horizon (though it’s not always so cut-and-dried):

  • Short-term time horizon: Up to 10 years
  • Medium-term horizon: 10 to 20 years
  • Long-term time horizon: 20 years or more

Your robo advisor may identify the need to have several buckets of investment products. For example, your first bucket may contain funds for short-term goals, your second bucket may contain money that focuses on both growth and capital preservation. Another bucket may contain growth and income-oriented investments with tax benefits built in, such as that in a Roth IRA.

The better you can articulate your time horizon, the more your robo advisor can help you target the right goals for your specific needs.

Risk Tolerance

How comfortable are you with risk? In other words, would you choose to invest in an asset that puts your money at higher risk (with higher potential return) or do you feel more comfortable with an asset that offers lower risk (and potentially lower return)?

Your personal preference can drive your risk tolerance level. However, your age, investment goals and income can also play into determining your risk tolerance. Aggressive investors may prefer to risk more money for the possibility of better returns, while a conservative investor might opt for investments that offer more of a safety net, though it’s important to remember that no investment has guarantees.

Assets

Assets contain economic value and/or future benefits which can generate future cash flows. What kinds of assets do you already own and what kinds of assets would you like to invest in? You may not always know right off the bat, and that’s why taking your objectives, time horizon and risk tolerance into consideration will help you and your robo advisor identify the best assets for your portfolio.

A few examples of investment assets: stocks, bonds, mutual funds, ETFs, and retirement savings accounts like 401(k)s and IRAs. Are these the only assets available to you as an investor? Of course not! However, your robo advisor may get the ball rolling with these common asset types.

Portfolio Preference

Some brokerages also ask if you have a preference for the type of portfolio you want. At Ally Invest, we offer the following robo portfolios:

  • Core: Core refers to a basic allocation with a highly diversified mix of stocks and bonds
  • Tax optimized: These portfolios help enhance returns with tax-exempt income through municipal bonds
  • Socially Responsible: These portfolios invest in companies with strong environmental and social track records

Identify Your Objectives

Identifying a goal as an investor gets you in touch with what you’d like to accomplish. It might work to sit down and write out as many goals as you can think of. Consider everything, from investing for retirement to supporting your parents in their old age. Only by doing that can you determine your next steps.

Ally wants to get to know you and help you pursue all your goals.

Check out Robo Portfolios With Ally Invest