Decide whether a goal's money should be invested or kept in cash-like options.
Open your goals sheet and mark every goal that is more than five years away. For each one, you're going to decide three things: whether to invest any of its money, what share to invest, and the date or year you'd start moving it back into cash. You'll write each answer down with a reason.
The only question here is whether a goal's money should be invested at all, and how much. Which fund or shares to buy is a separate question, and another course covers it.
The question tends to come up at a family dinner. Your uncle hears you're saving for a flat and asks why the money is "sitting in the bank doing nothing". He has done well from shares over thirty years, and he means it kindly. He may be right for some of your goals. For others, following his advice could cost you the goal itself.
Investing in shares or funds makes sense for a goal only when two things are both true. The first is that the goal's date is many years away. The second is that any fall in value would have time to recover before the money has to be sold. A child's university fees fifteen years from now meet both conditions. So do goals you would happily delay, such as an extra property or a long career break. If both conditions hold, the goal is a candidate for investing.
Over a long period, the higher expected return from investing can make a real difference to the monthly saving figure. Lesson 1.3, "When saving returns change the monthly figure", used PMT to show how a higher expected return changes that figure. Keeping a long-horizon goal fully in cash for 15 years gives up a lot of growth. The cash protects you against falls that the long horizon could have absorbed anyway.
There is a limit, even for long goals. Invest only the share you could watch fall by a third without changing your plans. Long-term money is money you would not sell in a bad year. If a bad year would make you sell, that money was never really long-term money, and it should not be in the invested share.
A goal with a fixed date and no flexibility should not depend on markets in its last few years. A hotel deposit, a flat payment and a course fee due on a set day are all like this. If prices fall shortly before the due date, you can't wait for them to recover, because the payment is still due.
A fixed-date goal can still be invested in its early years. A goal twelve years away could be, as long as the money moves into cash-like places, meaning places that hold their value, on a schedule that starts well before the date. Lesson 2.1, "Your time horizon decides how much risk a goal can take", described this kind of schedule. The final stretch before the date must be held in places that keep their value.
An optional goal can be partly invested, and choosing not to invest it is also reasonable. The point is to make the decision on purpose. Mei and Daniel have several goals. Their wedding and flat payments are fixed and under five years away, so that money stays out of the market. Their car is optional and five years away, so they could invest some of that money. They decide not to, because the car may never happen and they don't want to watch its fund swing. Investing some of it would also have been reasonable. Their choice is sound because they made it deliberately.
For goals such as a child's education, some people are offered an insurance savings plan, often called an endowment plan. These plans are often marketed as a way to save for a specific goal over a fixed term. They are not like deposits, though, and you may not get back what you put in.
Before you use one for a dated goal, the main thing to check is the surrender value, which is what you would get back if you stopped the plan early. In the early years, the surrender value is often well below the premiums you have paid, because of costs built into the plan. If you might need the money before maturity, find that year in the surrender value table in the policy illustration. Compare the figure there with the total you will have paid in by then. Then compare the maturity date with the goal's date. If they don't line up, the plan is a poor fit for that goal, whatever its projected return.
None of this is a judgement on whether these plans are good or bad. The only check is whether the money will be there, in full, when this particular goal needs it.
Farah is saving for her daughter's university fees, 15 years away. She invests 70% of the goal's money and keeps 30% in cash-like places (example figures). When the goal is five years away, she starts moving the invested part into cash, a third each year, so the move takes three years. She keeps her written reason beside the goal: the date is fixed but far off, and she would not need to sell in a fall during the first ten years.
Do the same for each long goal. Write down whether you would invest any of it, what share, and the date you would start moving it into cash, and add a reason.
If you decide to invest, the course "Build and run an ETF portfolio" teaches how to build and run a portfolio for long-term goal money. "Bonds, T-bills, SSBs and fixed deposits" covers cash-like and bond options in depth. You don't need either course to make the decision for your goals.
Go through the goals on your sheet that are more than five years away. For each, note the share you would invest, if any, and the year you would begin moving that money to cash.
For each long goal, write down whether you would invest its money, how much of it, and when you would move it into cash.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).