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.
 * 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)
 * 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
Step 1: the goal
 * Lucie’s child will attend post-secondary education in 5 to 6 years. Unfortunately she has not saved anything toward that goal yet but aims to catch up. She wants to have at least $30k in 5 years.

Step 2: the plan
 * Lucie will open a Registered Education Savings Plan account at a Discount brokerage, making sure there are no annual fees.
 * She will deposit $5000 a year. This will attract at least $1000 a year in government grants.
 * The chosen asset allocation for the first year or two will 25% cash & 75% bonds, then the cash proportion will be increased.

Step 3: implementation
 * The initial $5000 deposit will be split this way: $1000 in a Fund-based investment savings account, and $4000 in a low-cost Canadian bond exchange-traded fund.

Step 4: rebalancing
 * Rebalancing will be done through additional contributions.