How to Save and Invest for Short- and Long-Term Goals
Most of us have a mix of financial goals. Some we’d like to achieve in the next few years, and others that are decades away. The time frame you set for your goals is one of the most important factors in deciding how to save and invest.
Why time matters
Think about saving for a family vacation or a new car. Those are short-term goals, you’ll probably want the money within five years. On the other hand, saving for retirement is a long-term goal because it’s much further down the road. The strategies you use for each will look different, since the amount of time you have can influence both the risk and reward of your investments.
- Short-term goals: For money you’ll need soon, protecting your savings matters most. A high-interest savings account, money market fund, or GIC can help you grow your money steadily while keeping it safe and accessible.
- Long-term goals: When you have more time, you can take on a bit more risk in hopes of greater growth. Investments like mutual funds, ETFs, or equities can help build wealth over time, and as you get closer to your goal, you can gradually shift to more stable options.
Matching your accounts to your goals
Different types of accounts can help you save effectively, depending on your timeline:
- Everyday savings: A high-interest savings account is ideal for emergency funds or short-term needs.
- Short-term goals (under 5 years): TFSAs and non-registered savings plans can be good options for lower- to medium-risk investments.
- Long-term goals (5+ years): RRSPs, TFSAs, or workplace pension plans are designed to help you build toward bigger goals like retirement, while also offering tax advantages.
Saving for the short term
If you’re planning for something in the near future, focus on low-risk investments that protect your money. A TFSA, for example, can be a flexible way to save for:
- A car purchase
- A dream vacation
- A down payment on your first home
Saving for the long term
When your goals are years away, you have more time to ride out market ups and downs. A diversified mix of investments (some lower risk, and some higher) can give your money the opportunity to grow. As you get closer to your goal, you can gradually shift to safer investments.
One of the biggest long-term goals for many Canadians is retirement. Contributing early to an RRSP, TFSA, or pension plan allows your savings to compound over time.
Stay focused on the big picture
Markets naturally rise and fall, sometimes sharply in the short term. The key is to stay focused on your long-term goals and avoid making decisions based on short-term market swings.
Putting it all together
The bottom line: the more time you have to reach a goal, the more flexibility you have in how you invest. For immediate needs, keep your money accessible. For long-term goals, consider a balanced strategy that lets your savings grow.
And remember, you don’t have to figure it out alone. We are here to help you create a strategy that matches your goals, your time frame, and your comfort with risk.