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Importance of Goal-Based Investing

03 March 20235 mins read by Angel One
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Everyone has a goal. We all wish to save enough to lead a comfortable life, take international vacations, retire early, and be able to enjoy the simple luxuries of life. The problem with these goals is not that one is being overly ambitious and cannot achieve them. The inherent issue is that we have not defined these goals properly. Maybe we should think of rephrasing them to leading a comfortable life at 50 with enough money saved for my kid’s education, take an international vacation very 2 years , retire by 55 with a surplus in investment that ensures an easy second income etc. The key lies in defining your purpose. ‘I have INR10 lacs in investments’ is not nearly as enticing as saying ‘I have INR10 lacs in investments to be able to buy my first new car’. A disciplined form of investing is thus a pre-requisite for being able to effectively meet all of your goals.

More often than not, what most of us possess is a jumbled mix of an investment portfolio. There are just too many ad hoc investments made without a defined sense of purpose. We are so inclined towards being able to provide effectively for our long term goals, that we disregard the short-term ones or vice versa. The result is a thoroughly confused investor with an unbalanced portfolio. Wealth managers often charge exorbitant prices for the off-the-shelf advice that they provide and the consumer is left with a half constructed plan that may eventually lead to nowhere.

Goal based investing adds a much needed direction towards your investments answering the 3 How’s effectively; How much to invest? How long do I invest? And, How to Invest?

Technology has changed the face of the financial services industry in India, for the good. Consumers have access to their portfolio and the capital market to be able to make a sound decision that they were earlier bereft of. For the real planning to begin, you need to carefully assess your current income, the goal you’ve set out, your expenses, and the determine how much money you’ll need to save every month to be able to get good returns in the future. The earlier you identify your goal and start, the better.

There is no short-cut to amassing wealth and the only way to increase your net worth is through strategic savings and correct investments. One needs to believe in the magic of compounding. Simply put, it means letting the interest secured keep increasing over the years. Compounding is a direct by-product of investment planning. High risks mean high returns but to be able to take risks, you need to start investing early. Goal based planning would also be able to ensure an appropriate asset class allocation. For example, for some individuals, it would be unwise to invest in equities or derivatives for a long term goals, lest the markets take a sour note. A disciplined way of planning would always ensure a certain amount of predictability for the future.

Most of us today have started earning at an early age. Therefore it is imperative to know the importance of investing from early on. Goal based investing is not just another fancy term for money and expense management. It is an actual science that will lead you couple of steps closer to what you have set out to achieve for yourself. Contrary to the popular belief, goal based investing actually helps you save less and achieve more in the long run. For example, one wants to have INR 1 cr in their bank account by the age of 40. While it seems like a daunting mount, if you start early, you my hardly have to keep aside 10% of your annual income towards the said goal. Allocate the money smartly and voila, you have reached there. Goal based investing will ensure that your money grows optimally at all times and the risk taken is directly proportional to your needs/risk profile for that given particular time. For long term goals, you’ll end up saving in more aggressive asset classes and for short term goals you may want to invest in a little less volatile mediums of investments.

We need to usher in an era of goal based investing in the country. Times are simpler and it is infinitely easier to be able to devise a strategy best suited for your own needs. There are innumerable advantages and one needs to fully understand the potential of this science, designed to help achieve your financial aspirations.


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