Investing for goals
Investing is often linked to goals that are further in the future. Learn how it works in practice, what types of accounts exist and what to consider before getting started.
Investing is commonly associated with goals that are further in the future, where timing and amounts may be less certain.
In this lesson, we take a closer look at how investing is commonly used in practice, focusing specifically on long-term investing for goals.
What is passive investing?
Passive investing is a long-term investment strategy where you track the market rather than try to beat it.
Passive and active investing
Passive investing means spreading your money across a variety of investments so your returns grow in line with the market. A common way to do this is through funds like ETFs, which track a range of different assets.
The opposite of passive investing is active investing, where you pick specific stocks, trying to beat the market. Passive investing skips this and simply relies on the market's gradual growth over time.
Keep in mind that investment values can fall as well as rise — unlike savings, a positive return is never guaranteed.
Types of goals commonly linked to long-term investing
People often use passive investing when they want to grow their money over a longer period of time, although outcomes are not guaranteed. Passive investing is often associated with goals such as:
- Building wealth in general, over time
- Saving for a child’s future
-
Putting money aside for retirement
In these situations, many people feel that growth potential plays a more important role than short-term stability. These goals typically share a few characteristics:
- The timeframe is longer
- The required amount may be less certain
- The money is not needed in the short term
What to consider when investing for a goal
When investing for a specific goal, people often think about:
⏰ | 🎢 | 🎯 |
|---|---|---|
Time horizon How long can the money remain invested? | Comfort with fluctuations How would you feel if the value changes? | Flexibility of goal Can the goal adapt over time? |
Types of investment accounts
Different types of investment accounts are used for different goals:
📈 | 👵🏼 | 👶🏽 | 💼 |
|---|---|---|---|
General investment account | Pension investment account | Children’s investment account | Business investment account |
General investment account
Key characteristics | 👉 Allows investing in assets such as stocks, bonds, ETFs or funds 👉 No specific tax advantages 👉 Investments can usually be bought or sold at any time during market hours |
Typical use: | General long-term investing and wealth building |
Pension investment account
Key characteristics | 👉 Often offers tax advantages depending on the country 👉 Money is typically intended for long-term retirement saving 👉 Withdrawals may be restricted until retirement age |
Typical use: | Building retirement income |
Children’s investment account
Key characteristics: | 👉 Account is opened in a child’s name 👉 Usually managed by parents or guardians 👉 Assets may transfer to the child at a certain age 👉 Sometimes offers gift tax advantages |
Typical use: | Long-term wealth building for a child’s future |
Business investment account
Key characteristics | 👉 Account is opened in the name of a business 👉 Used to invest company funds 👉 May have different tax or reporting rules |
Typical use: | Investing company reserves or surplus cash |
Investing accounts are often designed with a longer-term perspective in mind, where access may be more restricted or the focus is on growth over time.
The role of time
Time plays an important role when it comes to investing. Over longer periods, short-term changes in value may become less relevant, as there is more time for the value of investments to develop.
This is one of the reasons investing is often associated with long-term goals rather than immediate needs.
📅 | 🤔 | 🌱 |
|---|---|---|
Sophie is thinking about her retirement, she considers opening up a supplementary pension account. | She asks herself when she'll need the money and how she'd feel if its value fluctuated along the way. | Because she has a long time horizon, she chooses to invest regularly and give her money the opportunity to grow over the long term. |
Disclaimer: Know that investing always involves risks. Peaks is an execution only service and does not provide financial advice.
Key takeaways
✓ | Investing is commonly associated with long-term goals |
✓ | It offers growth potential, but comes with uncertainty |
✓ | The value of investments can rise or fall over time |
✓ | Time horizon and personal comfort with fluctuations are important considerations |