Investors' Tips for Juggling Multiple Investing Goals

When investing, it often helps to have a goal in mind. For many investors, saving up for retirement is the ultimate goal, but other goals--such as saving up to send a child to college, saving up to buy a home, or building a financial legacy--may not be far behind. And while not all of these goals may be priorities at the same time, it's not uncommon for investors to face competing goals and limited resources. For younger investors with families, the question might be how to save for retirement while also socking away money for their children to go to college. For older investors, a common question is how to balance investing and spending in a way that will allow them to leave something behind for their heirs.

Pursuing multiple investing goals often is a matter not only of prioritization but of finding a system that helps keep the plan on track. Last week, we asked Morningtar.com readers to share their investing goals and to explain how they manage them. Many described managing portfolios earmarked for specific purposes--retirement savings and income, in particular--while others discussed how they manage competing financial goals such as those mentioned above. The full conversation can be found here, and the following are excerpts.

Spelling Out Your Intentions
Among those juggling a variety of investing goals was SeanDWB, who wrote, "My first priority is retirement, but that goal is more than a few decades off so that [allocation] consists mostly of equities (with a portion of that invested in defensive sectors for bear markets). I have some bonds in there too. The majority of my savings each month goes into that bucket. I have an education savings account (Coverdell) that I sock a bit of money into at the moment. While my plans for future schooling are tentative currently, as they become more solid I plan to increase that amount, whether that's for me or a child. ... I have another bucket of taxable investments that is separate from my retirement accounts. This bucket is tactical as it can be used for a variety of purposes, but currently is something I stockpile. It could be used for purchasing a house, further education, unexpected events, or if I don't use it for anything also siphoned off into something else (like a Roth)."

Chief K described his investing goals as follows: "1. On a month-to-month basis, maintaining a comfortable American middle-class standard of living. 2. Adding an annual 'splurge' for travel or to buy various hobby-related gadgets. 3. Accomplishing the first two goals while maintaining a cushion in case of a longer life or in case of illness." He said that, as far as investing goes, he subscribes to Warren Buffett's suggestion to "be greedy when others are fearful and fearful when others are greedy" and notes that the fact that he's still working at age 69 makes it much easier for him to do so.

Balancing Your Needs and Those of Others
Many retirees commented on the challenge of managing investments earmarked for their own well-being while also trying to provide for their offspring.

"We are retired and want to preserve our purchasing power, build our estate, and help our kids and grandkids where reasonable," said RetiredInvestor."Using a diversified approach and reasonable spending plan, it has worked well for the past five years of retirement. The low interest [rate] environment and one where credit and interest risks are not adequately compensated for makes it difficult. I call it the 'savers tax' since the low Treasury rates are artificially imposed by the Fed but affect all savers, especially retirees. I use the Morningstar  Portfolio X-Ray tool and my own Excel spreadsheet to track my investments and project them to ... age 95."

BillInGA also described his system for living on his retirement savings while helping out his children.

"Now that we are retired, our first goal is to not outlive our nest egg," he wrote. "Our second goal is to maintain our standard of living. Our third goal is to leave some (but not all) of our nest egg to our sons. These are managed by a spreadsheet model that I developed prior to retirement. In it, I model the effects of inflation on our expenses, the expected growth of our income, the expected growth of our investments and the effects of four different percentage drawdowns looking at both flat and inflation-adjusted withdrawal rates. Everything is projected out 35 years from the current year, and I keep prior year results to be able to see our progress. ... There is also a tab that details, in words, our overall objectives and plan for making it happen. ... I spend about an hour each month tracking actual expenses and about an hour each quarter tracking investment results. At year end, I spend two to three hours setting up the next year's budget." 

Being Financially Prepared
Juris2 said he recently retired and is focused on using retirement accounts for living expenses while maintaining taxable accounts that can be tapped for other purposes if needed.

"Two-thirds of my savings/investments are in tax-[advantaged] accounts (403(b), 457)," he said. "... I expect RMDs plus Social Security to provide sufficient support for our typical monthly expenditures. I will reinvest 'excess RMDs' in the future. ...  In my taxable accounts I've set aside a few hundred thousand [dollars] to allow us to relocate in the coming year (decision hasn't been made yet). That money is in cash-like form. The remainder is invested rather conservatively--mainly CDs, bond ETFs, but also a few equities and equity ETFs--and may be needed to cover occasional large expenditures (e.g. new car) as well as our long-term care insurance."

GregLee also mentioned long-term care as an important investment goal independent of everyday living expenses.

"Long-term care. That's what our investments are intended for since my wife's and my pension income seems to be sufficient for ordinary living expenses," he said. "We have no long-term-care insurance. Possibly, if we stay healthy for a long time, we may find some other use for the money."

Not everyone said they invest based on clearly defined goals, however. Darwinian was among those saying they manage their investing goals by focusing on time horizon. 

"Two words: asset allocation," Darwinian wrote. "For near-term needs, this requires significant components of cash and short-term bonds. For increasingly longer time horizons, I select appropriate investment mixes--intermediate-term bonds and conservative stocks for three to nine years, and mostly high-volatility, high-return stocks for longer holding periods."

Meanwhile, hondo said his investing goals focus on now as well as the future.

"I have only two goals at age 76," he said. "1. To support my and the wife's retirement. 2. Most important, to provide for the wife when I am gone a secure, hands-off portfolio to support her for life. With this in mind our portfolio is all in good, sound, balanced mutual funds. I believe, at her age, that the RMDs and our pensions will support her for the rest of her life. If not, she can draw from the taxable account and CDs. The children can have the rest, although they don't really need it."

For those looking for ways to help manage their various investing goals, an investing policy statement can help. (You can read more about how to prepare an investing policy statement here.) Tomas47 said it's an approach that has proven useful for him.

"My overall management tool is my investment policy statement based on Charles Ellis' book, Investment Policy," Tomas 47 wrote. "Writing an IPS is a great activity to clarify objectives, gain alignment with stake holders (e.g. spouse), and establish your investment strategy. I have relied heavily on the writings of [Bill] Bernstein, [Larry] Swedroe and [Rick] Ferri in establishing my asset allocation and rebalancing plan. I used pre-retirement spending history and Monte Carlo [simulation] techniques to develop a 'withdrawal' plan. I really only have one investing goal: Maintain a pre-retirement standard of living while increasing net worth by at least the rate of inflation." 

Comments have been edited for clarity and brevity.