Goal based investing- A killer plan which will always succeed
As per experts and veterans in personal finance, GOAL based investing will always result into success.
One of the keys to every project or every task is to have a PLAN. Same is with investing .You need to have a proper plan. Setting right investment goals can go long way in developing a proper plan that works for you.
Why do I need to set Goals for investments? I have money I can directly put that into stocks as they give higher returns and I am done with it. Every month I will keep buying new stocks with investible money.
Taking goal based approach will ensure the below
- With goals in place it’s more likely that you end up saving required money before you reach goal
- By having goals you have proper time horizon with you. This makes you to utilize proper asset allocation and minimize the risk by spreading investments across multiple assets over a period of time.
Why you invest money? You invest money so that in future the same can be utilized for various needs such as retirement, health care, education for kids etc. When you put money for investing, ask yourself a question – For what I am saving this money? IF you attach your investment to some of important goals then you know how much you are investing and for what specific purpose.
Ok, what could be the generic goals to begin with for an investor like me who is not seasoned and just starting?
Goals for investment can be
- A foreign holiday 2 years down the line
- Buying a second home
- Kids higher education
- Kids wedding
- Buying a vacation home
- Upgrade of existing car after 5 years and so on
Good. but why goal setting is required for me? Kindly explain this to me
Below are some reasons why goal setting is important and required for everyone
- Goals help you to avoid under saving.
If you have planned to save INR10,00,000 for car upgrade in next 5 years and you set aside INR15,000 per month for the same, you would be able to accumulate INR9,00,000 after 5 years of term as principal and well over INR10,00,000 including the interest which will enable you to go for the purchase without scouting for money elsewhere.
- Plan ahead for the goals – save less money
When you plan for a goal like retirement which is say for example 25 years away, you need to set aside small amount per month towards it. You can also take help of equities as the investment term is fairly large. This will give you better returns as equities tend to give best returns over longer duration. Same is applicable for the other goals too.
- It helps you achieving the target more practically
When you start investing keeping a goal in mind with some target amount – you have flexibility to tweak monthly investments towards it if the target amount value changes. This will help you in staying flexible and moreover you will be more realistic in your approach.
- Goals help you save for tangible outcome
When you have goals, it’s more likely that you will achieve them.When you attach a real outcome, it’s more likely that you will work hard to achieve it somehow. Human is more motivated by real things than by some abstract numbers
- Your budget never goes haywire
With goals in place, you know how much your monthly spending would be. This will help you in doing proper budgeting month on month and you will be in control of spending and your budget will never go haywire
- You can avoid debt using goal based investing
When you associate goal based investing with every large purchase, you will have actual money to pay for the purchase. This way you can avoid getting into debt and can remain debt free
- You can optimize your investment portfolio and maximize returns
With a set target tenure, you get more insight into your portfolio. You Allocate assets based on the tenure and this way you have an optimized portfolio which means you manage the risk well.
- You have guilt free spending money at hand month on month
When you allocate your money monthly towards different goals, the leftover money with you can be spent without any guilt, without thinking that spending the leftover money will cause financial problems at a later date.
Thanks, I got to know a lot of things and with goal based investing I can do my financial planning in a much better way and the most important thing is I can avoid debt.
Yes, and above all goal based investing will make you a better and disciplined investor and can optimize your investments
Happy investing !!!