HAVE YOU FIXED YOUR GOALS AND STARTED INVESTING ACCORDINGLY?

Today's goals come with a price tag. Goals can be like higher education, buying a car, a house, or dream vacation, child’s marriage, retirement planning, etc. Everything is getting expensive by the day taking the inflation into consideration. However the ratio of rise in inflation to rise in income does not match.

To be able to achieve your financial goals, it is essential to save and invest regularly. Smart investment is the key to achieving all of your short and long-term goals in life.

Goals give us direction, vision, motivation and clarity. To achieve success, we must first set our goals. It is very important to set goals in our financial life. If you can master goal based investing, you can become your own financial planner.

To achieve success you need to do the below:

1)      Identify and plan your goals

2)      Categorize goals into buckets

3)      Asset Allocation

4)      Invest wisely

5)      Monitor your investments

1)      Identify and plan your goals

It is very important to first identify your goals and then plan for the same. Each plan you make needs to be linked with a specific investment to reach a particular goal or milestone.

2)      Categorize goals into buckets

One should categorize their goals into 3 buckets:

a)      Short-term - Short-term goals span between a few months to 2 years,

b)      Medium-term - Medium-term goals have a time frame that ranges from 3-8 years &

c)      Long-term - Long-term goals work on time horizon of 10 or more years.

3)      Asset Allocation

One should understand their risk appetite along with their goal and based on that plan their asset allocation. On can choose between equity, debt, commodities and hybrid instruments. Diversification based on risk and return is the key in asset allocation.

4)      Invest Wisely

Once you have selected the asset allocation, then comes the next step to evaluate as to how much to invest in which asset class. One should evaluate the risk-return trade-off and accordingly select the right asset class in the correct proportion.

5)      Monitor your investments

One has to be very prudent with their investments to meet their goals. You cannot adopt an invest and forget approach. You have to mandatorily track your investment performance from time to time. Incase one asset class is not performing as expected, you have to be prepared to reallocate your assets in a timely manner.

Performance of an investment is measured by the progress you make towards achieving your goal. Goal setting is a serious process and a must in this day and age.

Setting financial goals is key to making your future financially secure. Setting goals gives you a better perspective on how best to manage your expenses, in order to achieve your set goals well ahead of time. Starting small is key, when setting financial goals. Once you meet your short-term goals, you can move on to the bigger goals.

Goal-based investing uses the future value of a goal as a benchmark, as against evaluation of the investment performance by a variable like index.

A goal based investment strategy first creates a personalised financial goal according to the investor’s age, income, expenses, savings and risk appetite. Based on that personalised goal and the time period available to achieve the goal, an approximate amount is calculated while taking inflation, expenses and other investments into consideration. 

Finally, it is very  important to have the right mind-set if you want to succeed in goal based investing. Patient, perseverance and consistency are essential and indispensable virtues in this method of investing.