Do your investment strategies match your financial goals?

Aligning your savings goals and investment strategy with your financial goals—from a new home to a dream vacation—can help you measure your progress as you work toward them.

You no doubt have an idea of what you want out of your financial life. Maybe it’s a new home, college for your children or grandchildren, regular travel or a comfortable retirement. But does your investment strategy align with those personal financial goals?

Focusing on what you want to achieve can help you determine how to invest. Here are examples of goals-based investing in action, using some of the same investing strategies financial professionals use.

Financial goal: New home

For most people, a home is one of the biggest purchases they’ll ever make. Knowing how much, and how long, you’ll need to save can help alleviate stress during the home-buying process.

As a guideline, the current median down payment is 6% of the home price for the average first-time buyer and 13% for repeat buyers.¹ And while home prices in many locations aren’t rising as fast as they did the past few years, they are still historically high.

According to the National Association of Realtors, the median existing-home sales price in January 2023 was $359,000—1.3% higher than in January 2022.² Rising prices, coupled with higher interest rates, mean saving for a down payment and other expenses in an efficient way is even more important.

Finding the right type of mortgage loan is important, too. The following are available loan options depending on your situation:

• Conventional loan: With a minimum 3% required down payment,³ conventional loans are the most common mortgage loan.
• Department of Veterans Affairs (VA) loan: This loan is available to all eligible former and current members of the Armed Forces and National Guard and may not require a down payment.
• Federal Housing Administration (FHA) loan: FHA loans offer lower credit score requirements for qualified buyers than conventional mortgages.

Matching investment strategy: Certificate of deposit (CD)

CDs are a low-risk choice to help you save for a medium-term financial goal, such as a home purchase. In exchange for agreeing to leave your money in the account for a set amount of time, you’ll earn a higher interest rate than you would with a traditional savings account or a checking account. 

Financial goal: Travel fund

Approach your next vacation with the same strategic planning you bring to any other investment goal. Whether it’s a trip of a lifetime or simply a much-needed escape to the beach, anticipating and planning for expenses will ease stress and increase enjoyment. 

With the average cost of a weeklong vacation for a family of four ranging from $5,750 to $16,300,⁴ it pays to plan ahead and save accordingly. Here’s how your vacation can add up:

• Accommodation: When planning your trip, keep in mind accommodation can take up a third of the overall cost, more if you choose a luxury option.
• Transportation: Airline prices increased during the pandemic and show no signs of coming back down to earth, with the average price up 11% on 2022.⁵
• Other expenses: These can include food, drink, activities and car rental.

Matching investment strategy: Savings account

A travel fund is a short-term investment goal, but you should still keep your savings separate from your checking account. Consider using a basic savings account, which will offer at least a small amount of interest. If you travel frequently, a credit card with travel-based rewards can help you maximize your budget.

Financial goal: College fund

If you have kids or grandchildren, saving for college is an investment goal that requires some planning—especially as tuition costs continue to rise at both public and private higher education institutions. Ideally, families kick off college saving when a child is born.

Here are three tips to keep in mind.

• Estimate future tuition fees: Tuition prices will vary if the school is private or nonprofit, or if the student chooses to attend a university outside of their home state. Average tuition fees in 2022/23 ranged from $10,950 to $39,400 per academic year.⁶ You should plan for between a 1.8% to 3.5% rise in tuition each year.
• Don’t forget accommodation and other costs: The cost of living in on-campus or off-campus accommodation will vary widely depending on location. You or your child will also be responsible for other costs, such as food, utilities and books.
• Determine your savings goal: Making automated monthly contributions is the best way to build up a college fund. You could also solicit contributions from family members on special occasions.

Matching investment strategy: 529 account

With a 529 education savings plan, you make contributions with after-tax income. Any growth in the account is tax deferred, and contributions and any gains earned are not taxed when withdrawn and used for qualified education expenses. 

Financial goal: A comfortable retirement

Retirement is the ultimate long-term savings and investment goal. Experts recommend starting to save as early as possible and continuing to prioritize saving for retirement as you age.

Consider your current cost of living. Your income needs in retirement probably won’t be much different, minus the costs associated with any children who have moved out.

In 2021, for example, U.S. households led by someone 65 years or older spent an average of $52,141 on housing, transportation, healthcare, food, utilities and other household expenditures.⁷ Your ideal annual budget in retirement might be higher or lower than this, but what counts is that you put a plan in place that matches your vision of retirement. A financial professional can help make this happen.

Matching investment strategy: 401(k) and IRA

Start with a workplace savings plan, like a 401(k), if you have access. Take full advantage of any employer match that may be offered, as well as the tax advantage of contributing pre-tax dollars.

If you’re already maxing out contributions to your workplace plan or don’t have access to one, consider opening a traditional or Roth IRA, which may provide you with additional investment choices.

Take the investing options quiz, offered by U.S. Bancorp Investments, to get actionable insights into what type of investing suits your financial goals and preferences.