Course 201: How to Juggle Different Investment Goals
Craft a Portfolio for Each Goal
In this course
1 Introduction
2 Map Out What Each Goal Will Cost
3 Recognize Your Options for Each Goal
4 Craft a Portfolio for Each Goal
5 When Is Enough Enough?

Different goals require different portfolios and thereforethey usually demand a distinct assortment of investments. Unless you plan to send your child to college at the same time you buy the new house, you'll need the money for those goals at different times. One portfolio won't serve both goals equally well because a portfolio should change shape as its goal nears. At that point, you should be protecting what you’ve made rather than trying to eke out further gains.

If you're buying that house in three years but your daughter won't start college for another decade, you should be conservative with your home investment and aggressive with your education one. And if you have children who will be starting college at different times, you'll probably want to set up separate portfolios for each of them, too.

Take the following steps for each portfolio:

  • Determine your asset allocation for each portfolio. Each portfolio will need a different mix, depending on your time horizon and final portfolio value for each goal. For tips on how to do this revisit Portfolio 105: Determining Your Asset Mix.
  • Conceptualize each portfolio. Figure out what types of investments will form the core of each portfolio and what, if anything, will fill out the edges. To find out what makes a core holding, review Portfolio 106: Core versus Noncore Investments.
  • Draft an Investment Policy Statement (IPS) for each portfolio. While many parts of the IPS may repeat from portfolio to portfolio--your investment philosophy may be the same regardless of the goal, for example--some parts will differ. Creating different statements for each portfolio makes monitoring each portfolio easier, too. Use our Investment Policy Statement Worksheet for each portfolio. Download the worksheet from Portfolio 108: Creating Your Investment Policy Statement. (Note: The worksheet is available as a PDF file. You will need Adobe®Acrobat® Reader to view and print it.)
  • Select investments for each portfolio based on the criteria you laid out in your IPS. Choose your investments for each portfolio, then enter each portfolio separately into a portfolio tracking tool, such as Morningstar.com's Portfolio Manager. Portfolio Manager allows you to enter up to 25 different portfolios. That’s enough for one retirement portfolio for you and one for your spouse, a college-savings portfolio for each of your kids, a home-buying portfolio, and even a "model" portfolio of investments you’d like to make someday.

Next: When Is Enough Enough? >>


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