How to save and invest for short-term and long-term goals

You probably have both short-term and long-term financial goals. And how much time you have to achieve your goal can help guide how you save and invest your money.

Saving and investing: why time matters

Saving for a vacation or a car tend to be short-term goals, meaning you’d like to reach your goal in the next five years or so. Saving for retirement is a long-term goal, as it’s likely still more than five years away. Why does it matter? Because the investment strategies are different, based on how long you need to achieve the goal.

  • When you’re saving for a short-term goal, financial experts suggest you keep it in a low-risk account, such as a savings account. Because you’ll need to take out your money in the next few years, you want to be sure it holds its value.
  • When you’re saving for a long-term goal, you may want to invest your money to give it a chance to grow. When you have more time until you need your money, you may be willing to buy investments with more potential risk and potential reward. Then as you get closer to your goal, you may want to lower your potential for risk.

Think about your savings account, for example. You may want that money to be available to use quickly—super short term. As a result, you’re happy earning the low interest rate on a savings account because you know what it’ll be worth when you need it. At the other end of the spectrum is your retirement savings. If you have several years until you retire, you may be willing to take some risk on your investment strategy, in the hope that over time, it’ll grow.

Strategies and accounts that may help you save for different timelines

Availability of funds

Investment strategy

Account type examples

Saving for today

Interest-bearing accounts Low-risk investments

General savings and investment accounts

Saving for a short-term goal

Low- to medium-risk investments

Investment accounts

Tax-free savings accounts (TFSAs)

Non-registered savings plans (NRSPs)

Saving for a long-term goal

A mix of low-, medium-, and higher-risk investments

Employer-sponsored registered plans, such as:

  • TFSAs
  • Registered retirement savings plans (RRSPs)
  • Registered pension plans (RPPs)

That’s why time matters. So, to get started, set your savings goal and decide how much time you need to achieve it. Then you can put together a time-based investment strategy.

How to invest for the short term

If you have a goal set for the near future, you may also want your investment strategy to be short term. Because the market can go up and down rather suddenly in any short period of time, you don’t want to assume a lot of risk in your short-term investment strategy. Instead, you may want to focus on funds that have lower levels of risk and a history of steady returns, such as money market funds and guaranteed investment certificates.

If your employer offers a TFSA, it can be a great way to save for short-term goals, such as:

  • Buying a new car
  • Taking a big vacation
  • Saving a down payment for a house

How to invest for the long term

When you have more time to invest, you may want to take on some risk in the hope of earning some reward. Over time, the stock market has risen, though in the short-term, it can fluctuate quite a bit.

S&P/TSX composite index

Source: S&P Dow indices, June 2022.

That’s why investment experts say you may want more risk and potential reward in your investments when you’re a long time away from your goal. And as you get closer to the time you’ll want to take money out, you gradually change to more predictable investments.

If you have more than five years to save, you may want to look at investing in more types of funds. With a long-term goal in mind, it might be prudent to invest in a mix of funds to spread your risk and reward over different types of investments—that way, when some go down, others may go up, smoothing out your returns over time.

Investing for retirement: keep your eye on the future

The largest long-term goal most people have is saving for retirement. If your employer offers a TFSA, RRSP, or RPP, it’s best to start saving as soon as possible, so your savings have time to take advantage of the long-term growth opportunity. Workplace savings plans offer you several different investments to choose from. You can create your own mix of investments, or you can choose a fund that does it for you. Target-date funds, for example, make it easier by choosing the investment mix for you and managing it according to your planned retirement date.

When you invest for the long-term, stay focused on your long-term goal and try to tune out the noise in the short term. The stock markets go up and down on a daily basis, sometimes a little, and sometimes a lot. But over time, the stock market has generally gone up. If you panic and sell while the market is down, you may lose the chance to take advantage if the market swings back up.

It’s about time: match up your goals with the right strategies

You’ve got all sorts of financial goals—from keeping up with your monthly bills, to being able to go on a big trip, to saving for the retirement of your dreams. If you need help matching up your financial goals with the appropriate strategy, speaking with a financial advisor can help. Many workplace plans even offer you access to financial advice, so ask your employer if yours does.

Whether you work with an advisor or do it yourself, the general rule is the same: think about how much time you need to achieve your goal when you choose an investment strategy. Generally, that means:

  • Saving for immediate financial needs in your bank account
  • Making short-term investments in funds with low risk
  • Considering a little more risk with your long-term investments

Take the investor strategy quiz to learn more about the style of investing that best suits your goals!