The way to save for large monetary objectives apart from retirement

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Start young. Look away from your 401 (k) when the market freaks out. Don’t sell.

Much of the investment advice you hear likely has to do with saving for retirement. However, many people need to use market returns to achieve other goals as well.

Often times, it also makes sense to invest in goals like a down payment on a house, starting a business, sending a child to college, among other milestones that can come long before you turn gray or leave work for good.

“Life is so much more than just retirement,” said certified financial planner Peter Creedon, CEO of Crystal Brook Advisors in Mount Sinai, New York.

It can be intimidating and confusing to juggle multiple goals with different schedules. CNBC spoke to financial advisors about how best to do this.

Prioritize first

To understand how to prepare for multiple goals, first rank those ambitions from most important to least important, said CFP Douglas Boneparth, Founder and President of Bone Fide Wealth in New York. Your list will be subjective, he said. “Personal finances are personal.”

Gaining financial independence – being able to retire – may not be number 1 for you right now. Instead, you can decide that buying a home is your primary focus.

That’s fine, but you also want to know what the ramifications of prioritizing one goal over another, Boneparth said. For example, maybe buying this house means you have to work two years later.

“You can solve these puzzles,” said Boneparth.

Timeline is important

How should you save your goals after you’ve defined them?

Barry Korb, CFP and President of Lighthouse Financial Planning in Potomac, Maryland, has a relatively simple way of determining whether you should be using the exchange for any purpose.

If the deadline for when you need the money is under five years then it is too risky to use stocks, he said, adding that in such cases, you’d better save with cash or certificates of deposit.

So much depends on the timeline.

One of Korb’s clients recently told him that his high school graduate child had been accepted into an Ivy League school. They told Korb they had $ 240,000 in a 529 college savings plan – all in stocks. (529 accounts are named after a section of the Tax Code and allow people to invest for college while avoiding taxes.)

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“I told them to immediately transfer 80% to 90% of the savings in cash equivalents,” said Korb. “Surely they would rather risk a 50% gain than lose 50% in the next few years.”

However, if the client’s child was 1 year old, it makes sense to take the same risk. In fact, saving with just cash would cost them.

If you start investing in college expenses when your child is born, about a third of your goal could come from investment income alone, said Mark Kantrowitz, a financial aid expert.

You can sign up for an age-based 529 plan that automatically gets more conservative – more toward bonds and away from stocks – as your child nears the end of high school.

How much risk?

Understanding your risk tolerance is especially important when it comes to short-term goals as you will have less time to weather market downturns, experts say.

Still, much of the wisdom about retirement planning applies to these goals as well. Mainly, you want your allocation to become less aggressive as you get closer to the need for cash.

For example, let’s say you want your down payment on a home to be ready in seven years.

Boneparth said he would typically recommend investing between 40% and 60% of that savings in stocks and getting more out of stocks every year. Avoid the temptation to get complacent when the concentration of stocks is too high.

The last thing to happen, Boneparth said, is to allocate too much stock and see a big correction just before you were hoping to close a house.

Where to save for different goals

Of course, individual retirement accounts and 401 (k) plans are where you salt away cash for your old age. For college savings, most experts recommend using a 529 plan because of the tax benefits.

Typically, when it comes to other goals, like starting a business or paying a down payment, you should use a brokerage account, Boneparth said.

While you can get some retirement accounts for home buying and other purposes, there is one downside to this. He added, “You are stopping compounding there for a longer-term goal.”

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