Everything You Need To Know About Goal-Based Investing

You’re earning well today, you can afford to buy the clothes you want, rent a house, pay your bills and live a comfortable life. You’re also saving up some part of your income and putting it into your savings account. Wait, what did you say? Savings account? So, you’re letting your hard-earned money just sit idle while missing out on its potential to secure your future?

Now, what do you do? Invest it. With inflation rising, it becomes necessary to not only save up money but also invest it. To reach your goals, you must invest. It’s the only way to improve your prospects. You are also saving and building wealth for the rainy days by making investments. Apart, making regular investments pushes you to set aside money regularly, which helps you develop financial discipline over time.

One way to go about it is a goal-based wealth management and investing. 

4-Point Basics About Goal-Based Investing

1. Goal-based investing involves defining your financial objectives, creating a timeline for each one, and investing frequently in order to achieve them. As a result, you effectively give all of your dreams and financial goals a chance.
2. Goal-based investment planning is different from traditional investing.  In the former, an investor’s success is measured by how efficiently he or she achieves personal life goals rather than how well their investments perform in the market average over time. So you’re not competing with the market in this race, but you’re running it for yourself.
3. Ideally, you will have to calculate your monthly expenses and multiply it by at least 6. That’s the ideal amount of money you should be saving up for your emergency fund. You can do this by putting your money in fixed deposits and liquid funds, investing in SIPs, stocks and start-ups, depending on your risk appetite, investment objective, term of investment, and other factors.
4. Now, coming to the investment objective, let’s explain it through an example again. Let’s say your GBI (goal-based investment) is saving up for education for your children’s future. Ideally, you’ll need to start when your child is young. You can start with monthly SIPs (systematic investment plans) in mutual funds and stocks. 

Similarly based on your goals, they could be short-term or long-term, the method of investment should vary to tailor-fit your needs.

3 Major Benefits Of Goal-Based Investment

1. Builds Financial Discipline

Investing without a plan is a less disciplined approach. Many investors who do not have a specific aim in mind eventually cease investing for a variety of reasons. However, if you have precise goals in mind, you are more likely to stick with it. Because you know that if you stop investing, you will never achieve your goal.

2. GBI Balances Your Portfolio

When all of your investments are tied to your financial goals, you’ll be able to examine and rebalance your portfolio at the appropriate times. It also allows you to choose the best goal-based asset allocation. This is the key to safeguarding your gains and ensuring that you will have the funds when you need them.

3. Helps You Determine Your Exact Needs

When you conduct goal-based investing, you’ll make a list of the goals you want to reach, when you want to achieve them, and how much money you’ll need. And, while you do so, you’ll think about the current cost of reaching that goal and whether or not to raise the investment amount.

6 Things You Need To Know About How Goal-Based Investing Works

1. A goal-based approach to investing allows you to participate actively in the investment decision-making process.
2. You can take your schedule and risk tolerance for each goal into account when choosing investments because you’ve specified various goals.
3. Instead of judging an investment’s success by whether it outperforms benchmarks, evaluate how well its performance has been in the last few years against the aim you established for it.
4. To begin, you must first identify the various financial targets that you wish to achieve over different time periods. Then you must determine how much time you have, to achieve your objectives. Work out the current cost of each of these goals once you’ve established these two – aims and time period. Now double the current cost by inflation to get the future value of your target.
5. Retirement, children’s education and marriage, vacation savings, vehicle or home purchase in the short to medium term, tax savings, and regular cash-flows / income planning are some of the main financial goals that you may need to plan for.

3 Time-Based Goals You Should Consider Before Investing

The following step is to gather the required money after the goals, timeframe, and amount are established. As a result, putting money aside for them is the right approach. 

Where to invest? There are several investment choices available to you. However, you must be certain that you are only investing in options that are within your risk tolerance and meet your needs. 

Here are the timeframes you should consider before investing.

1. Short-Term Goals

A short-term goal is one which can be met in the next two to three years. Because you don’t have much time to achieve your goal, you’ll need an investment option that ensures the security of your money.

For short-term goal-based mutual fund investing, go for debt mutual funds. They provide you with respectable short-term returns. Debt mutual funds invest in interest-bearing bonds or other securities, lowering the risk involved. Compared to equities, the returns are similarly smaller, but they are higher than bank fixed deposit returns. If you prefer a risk-free option, a recurring deposit may be a good choice. Investing in shares for such a short period of time could be dangerous.

2. Mid-Term Goals

Medium-term goals are those that can be met in three to eight years. Med-term goals provide you with more options when it comes to investing. 

You could do an 80:20 combination of debt and equities mutual funds or stick with stock index mutual funds if you’re willing to take some risk. Because investing in equity funds can be dangerous, diversifying your portfolio with debt mutual funds can help minimise the risk.

3. Long-Term Goals

Long-term objectives are those that are more than 8 to 10 years in the future. You can afford to take risks here and go for goal-based investing in mutual funds, direct stocks, etc.

Long-term goals include, among other things, building a retirement fund, investing in your children’s education, and beginning a business. You could try equity mutual funds or direct stocks (shares of particular firms) to get the appropriate amount to fulfil your goal. Although risky, equity investments are thought to be well-suited for long-term aims. You could do it yourself, but only after conducting a thorough study or hiring a professional financial adviser to assist you with selecting funds and making investments.

3 Additional Tips To Remember Before Investing

1. Goal-based financial planning requires you to sit down and assess your priorities. That isn’t always an easy thing to accomplish. But it can be worth the time and effort of establishing your goals, calculating your needs, and mapping out how to achieve them.
2. You should get your investing started as soon as possible. Time is money when it comes to investments. The sooner you get started and the longer you stay involved, the higher your returns will be, because of compounding.
3. Do your research. Your goals are your own, therefore you’re in charge of handling how you’re going to achieve them. Know your risk tolerance and evaluate your options, even consider talking to a professional before you step out.

3 Key Takeaways

1. Goal-based investing places your financial goals at the centre of your investment plan.
2. It helps you achieve your goals through planned investing and managing your wealth.
3. You can start investing based on your risk tolerance, needs and time period of your goals. 

You get a clear view of your finances by mapping out all of your requirements. Goal-based financial planning can help to determine how much to invest, where to invest, and when to begin investing. Furthermore, it provides you with a reason to stay invested. And it helps you in fighting your worst adversary: recklessness.

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