How to Succeed in Goal-Based Investing

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Setting of goals is one of the most fundamental activities to succeed in anything. We have been taught since our childhood to make goals and then follow them to obtain the desired result. Everybody has certain goals; short-term or long-term. Once you realize what is important to you, you can easily set your goals and stay determined to achieve them.

We have many desires for the future. It could be buying a car, home, going for a vacation or planning an easy retirement. It can get overwhelming and one may start worrying about how they will achieve all their goals. This is where goal-based investing comes into picture and helps you achieve your desires through systematic planning and investment.

Goal-based investing is all about identifying your financial goals, setting a timeline and investing in them on a regular basis to attain the desired results. In one way, through goals-based investing, you give a structure to your dreams and financial goals.

Through goals-based investing, you can identify the right amount that you need to fulfill your financial goals. Choosing the right investment products will help you rebalance your portfolio. Financial goals also prevent you from falling into a debt trap and maintaining investment discipline. Hence, planning your financial goals should be the first step before investing. This can be compared to the fact that only if you know your desired destination, you can take the right road ahead.

Let us discuss the steps involved to succeed in goals-based investing:-

1.   Define your Goals

The first step towards successful goal-based investing is to set your goals in a well-defined manner. Your goals could be like saving for a child’s education, marriage, buying an apartment, going on a long vacation, planning a peaceful retirement or any other goal. You can set your goals in material terms like, you will need Rs. 1 crore in the next ten years to make your dreams come true or you will need Rs. 2 crores to buy the apartment of your choice in the next fifteen years. Thus, defined goals will help you track your investment in the best manner.

2.   Make a Budget

Achieving financial goals requires discipline. Thus, you need to form a monthly budget and estimate how much you can save in a month so that you can further invest this amount. Based on your monthly investment capital, you will get to know your required rate of return, subject to your time horizon.

3.   Know your Risk Appetite

Knowing your risk-taking capacity enables you to choose the right asset class. It will also help you to a large extent when the markets are volatile because you will know the limit up to which you can take risks. You must understand that you must take the right amount of risk based on your nature of investing. Your risk appetite depends on various factors like your age, education, liquidity, dependants, needs, financial situation, investment horizon etc. Too much risk can lead to being unable to withdraw funds when you need them while very little risk might mean fewer returns and the inability to achieve your goals in the desired time frame.

4.   Invest in Right Asset Classes

The next step is to allocate your investment corpus to different asset classes. Asset classes mean equities, bonds, real estate, commodities, mutual funds etc. Investors must understand that every asset class has its own risk-return characteristics. For e.g.- equities provide the highest rate of return but are considered high risk whereas bonds are a source of consistent cash flow but come with a low return-low risk characteristic. Thus, you must be wise to choose a proper asset class or you can take advice from professional advisors like mastertrust.

5.   Monitor your Investments

Lastly, you must keep a track of your investments and their returns at regular time intervals. You must churn your portfolio to match your expectations if your investments are not performing well. Constantly keeping a track of your investments helps you in achieving your goals on time and avoiding chances of any surprises.

Once you are aware of your goals, the timeline to achieve them, investment time frames and associated risks, you can start building your corpus for each goal. The aforesaid steps can help you in proper goals-based investing and help you achieve desired results. Goals-based investing helps you to live the desired lifestyle and stay away from unnecessary debt. Thus, it is one of the most effective ways to sustain a healthy goal-oriented life.

At mastertrust, we believe that Goal planning / Goal-based investment is the act of allocating part of your investments for a specific life goal – a crucial practice to ensure that funds are available in the right amount and at the right time and we ensure that you do not leave your Financial Health to chance. Connect with us to know more about goal-based financial planning, goal-based mutual fund investing, goal-based mutual funds.