Investing plan for short term goals

An investing plan is a roadmap towards investment or savings goals and is generally part of creating a financial plan. In some circumstances, a prospective investor may have a relatively simple or short-term (say, 5 years or less) goal that does not require a full investment policy statement. In those cases (buying a car, saving for a house downpayment, saving for a big trip, ...), a relatively simple investing plan may suffice.

Simple steps

An investing plan can be as easy as following these simple steps:

Step 1 - Formulate your goals. Be specific and calculate a target final amount as well as a date.^[1]
Step 2 - Set up a plan for each goal. The plan consists of
- identifying what type of account you will use to save the money;
- choosing the amount you will put toward the goal each year;
- working out an asset allocation likely to reach the goal with the minimum risk necessary.
  (The main asset classes to consider for short-term goals are cash and fixed income)^[2]
Step 3 - Select the best (usually lowest cost) investments to fulfill your desired asset allocation.
Step 4 - Rebalance the portfolio every year.

Example: saving for a downpayment

Step 1: the goal

Jack and Jill want to buy a home in three years and are saving for a downpayment. They are aiming to have at least $30k saved up.

Step 2: the plan

They will use their Tax-Free Savings Accounts since they have contribution room available and it will be tax-efficient.
They will each save $5k per year.
The asset allocation is 100% cash because they want to minimize risk and because the exact timing of the home purchase is uncertain.

Step 3: implementation

They will use the highest yielding CDIC-insured High-Interest Savings Accounts they can find.

Step 4: rebalancing

There is no rebalancing needed for this particular plan.

Example: investing for education