This is a guest post by Christopher L. Jones, author of The Intelligent Portfolio. The following is an excerpt from his book.

During the meandering path of our lifetimes, there are many types of financial goals that we strive to reach. Some goals are short term in nature, such as having enough money to pay the taxes to Uncle Sam next quarter or paying for that trip to Hawaii next spring. Others might span decades of time, such as investing for the retirement of you and your spouse or partner.

Clearly the size of a goal matters, but there are other characteristics that have an impact on your investment plans as well. The objective with saving and investing is to accumulate sufficient assets over a period of time so that you can adequately fund a goal. When setting up an investment plan, there are a few considerations about goals that are important to evaluate.

Time horizon
One of the most important factors is how long you have to accumulate assets. The longer the time period, the less you have to save. Also, if the goal is far in the future (e.g., retirement), then you have more flexibility in the appropriate investment strategy. If the goal is short term in nature, your investment choices will typically be more limited.

Flexibility in time
Some financial goals have a rigid time horizon. For instance, your child may plan to go to college in four years, the summer after completing high school. In this situation, it is not easy to delay the need for the first year’s tuition and room and board (although you could take out a loan to defer the full cost).

For other goals, like retirement, the specific horizon may be inherently more flexible. As an example, you might choose to delay retirement by a year or two if markets perform particularly poorly. The point here is that goals with variable time horizons create additional flexibility for an appropriate investment strategy. If things don’t go as planned, you might be able to delay the goal to ultimately reach success.

Flexibility in size
For some financial goals, the amount of money I needed is known in advance and is fixed. For instance, maybe you need to make a property tax payment next April of $15,000. In this case, the tax assessor is not going to take $13,000 if markets happen to perform poorly. You need to come up with exactly $15,000 next April.

For other types of goals, the amount needed might be squishier. Perhaps you are saving money for the purchase of a vacation cabin in 5 years. You might like to have $100,000 to purchase the cabin of your dreams, but maybe you would be willing to settle for an $80,000 one a little farther away from the lake if markets don’t perform as well as expected.

For goals with less rigid funding requirements, you can accept more investment risk than for goals with very specific requirements. If markets don’t perform very well, then you have the option to reduce your expectations a bit. In many ways, this idea is similar to the flexible time horizon mentioned above.

Lump sum versus recurring
Another consideration is whether the money to fund the goal is needed all at once (lump sum), or whether it will be paid out over time. For instance, you typically don’t need to come up with the full cost of a four-year college education all on the first day of classes. The payments will be generally spread out over a four-year period. In effect, goals with recurring payments have a longer time horizon than lump sum goals, depending on the length of the period over which the payments occur.

Of course, retirement goals are a special class of recurring payments, since the length of time that you (and perhaps your spouse) will need retirement income depends on your lifespan. Since we don’t know when we are going to die, this creates the need for a string of income payments with an uncertain end date.

Keep in mind the idea that flexibility — either in terms of timing or the size of the goal itself — is an important consideration when selecting an appropriate savings and investment strategy.

Christopher L. Jones is Chief Investment Officer and Executive Vice President of Investment Management for Financial Engines. Photo by Robyn Gallagher.

This article is about Basics, Budgeting, Choices, Planning