When it comes to investing, there’s no one-size-fits-all strategy. Your specific strategy will vary depending on your stage in life, financial resources and, most importantly, specific goals, emphasizes the Michigan Association of CPAs.

Clarifying your goals is key to the effective implementation of any investment plan. For example, are you trying to save for retirement, a new home, or college tuition? If you would like to save for all three goals, prioritize them and set a time frame for each. Recognize that you will have more time to save for some goals than others. Financial goals are generally classified as short-term, medium-term, and long-term. Knowing how long you have until you need the money for each goal will help you determine the appropriate investments.

Short-term goals call for low-risk investments.
Short-term goals are generally defined as those that you hope to achieve within one to three years. Examples of common short-term goals include paying off credit card debt, going on a vacation, making a down payment on a car, and taking time off from work to care for a new baby. If you have more than one or two short-term goals, you may need to prioritize them.

Low-risk cash equivalent accounts such as a passbook savings or money market accounts are generally the best investment options when working within a short time horizon. Other conservative possibilities include Treasury bills with a maturity of one year or less and bank certificates of deposit. These safe options generally garner lower returns than riskier investments.

Stocks or mutual funds, which tend to fluctuate greatly, may not give you the return you need in the short term. It is possible that you could lose money if you had to sell your investment at a time when the market is down.

Medium-term goals require conservative investments.
Medium-term goals fall in the three- to five-year range. For these goals, such as saving for a down payment on a house, a conservative approach remains the best strategy. The higher return you might earn by investing in stocks may not be worth the risk that the market may fall right around the time you need the money.

When investing for this term, most CPAs would agree that longer-term CDs, short-term bonds, and Treasury notes would be appropriate investments. Keep in mind that as your financial goal gets closer, you should consider moving funds into cash equivalent investments.

Long-term goals allow for more growth.
With a long-term goal, such as saving for your child’s college education or your own retirement, time means more flexibility. You can invest in growth assets, such as stocks, which tend to fluctuate more but produce a greater return over time. Unlike more conservative investments, stocks help to outpace inflation, an important consideration when investing for long-term goals. And since you have time to weather short-term ups and downs in the market, the risk is reduced.

When investing for the long-term, the way you allocate your assets among the different types of investments takes on increased importance. In fact, most CPAs would agree that choosing the right mix of stocks, bonds, and cash equivalents is the single most important factor for successful investing. Of course, as you move closer to the time when you’ll need the money, you’ll want to reallocate your assets toward more conservative investments.

Refine your investment strategies often.
If you’re like most people, your financial goals will shift throughout the course of your life. It’s important that you review your goals and investments regularly to ensure that they reflect your changing needs. A CPA can help you formulate an effective investment strategy.