Why a Goal Based Investment approach is your Best Bet
Happyness Factory is a Goal Based Planning platform. We aim to spread financial literacy and help people make sound financial decisions.
02 Jan, 2018
Traditionally, Indians have always been considered to be ‘good savers’. And while creating a savings corpus is a good thing and quite necessary to secure one’s future, this exercise can become quite pointless if these savings aren’t channelized in the right investments.
Over the years, we’ve moved from a savings mindset to a consumption one. Today, people would rather channel all their money into the next End of Season Sale rather than save and invest for the future. Of those who do invest, a majority are only concerned with and driven by one factor: Returns. But this is rather a foolhardy approach which ends up having the opposite effect on your wealth than the one you intended. By approaching your investments in the right way, you could end up creating a larger corpus, making the most of what the market has to offer and best of all, meet your goals.
A goal based approach to investing is the best way to make the most of your investments. The reason it is so successful is primarily because of two reasons. Firstly, when you set a particular goal, it caters to your unique needs. Therefore, you are emotionally invested in the process and tend to save diligently to meet the goal. Secondly, because this process accounts for your risk appetite and time horizon, the investment recommendations you receive are best suited to help you meet your needs. Therefore, those who invest towards goals end up more successful in their investment endeavours.
To begin the process of goal-based investing, you first need to figure out what your financial goals are. The basic idea is that unless you have a goal to work towards, you’ll end up going around in circles, even though you might have a general idea about your goals such as retirement, a trip to your favourite destination, children’s education, etc. It is upon further probing that realize that you need more clarity.
Start by asking yourself, “What’s important to me about money?”. Then go one step further and list down your answers in order of importance to you. There might be several goals you wish to achieve. Prioritizing your goals is imperative as it will help you zero in on your most important goals and channel your savings effectively . Once you’ve clearly defined your goals, begin quantifying them based on time; short-term goals for a period of 0-2 years, mid-term goals for 2-5 years and long-term goals for a duration of 5-25+ years.
Once you have established what your goals are, all you need to do is make payments towards each goal. This can be done either in the form of Lumpsum payments or by opting for a Systematic Investment Plan. Whatever option is chosen, the key is to be consistent with adding money towards each goal for maximum success.
There are a few important things to remember when you decide to go the goal based investing way.
- First, understand that when you’re investing in goals, particularly of the long-term nature, don’t be hasty in making judgements about this approach not being profitable. This is because short-term performance isn’t the best indicator of your overall position and shouldn’t be used to gauge your success. If you stick to your goal-based investment plan diligently, you’ll find that you will be able to spend a lot more in the future than you think you are capable of.
- Second, due to our lives undergoing a constant change, our priorities and goals tend to keep changing. So, it is extremely important to review and re-plan any goals that might become void because of changing life situations and circumstances.
- Third, money holds different meanings for different people. For some, it could mean a secure future or access to education, while for others, it could mean the ability to travel or buy whatever they wish to. No two people will ever have the same goals that make them happy and so trying to match your goals with someone else is a pointless exercise.
- Fourth, when it comes to getting advice regarding money matters, there’s no shortage of sources; family, friends, colleagues, insurance agents, advisors, planners, etc. Be smart in what advice you taken on. If you end up taking on all the advice given to you, it would result in a combination of products that might not necessarily go together and could end up hurting you instead. To know more about how to pick the right advisor for yourself, check out ‘Who should be on your Money Team?’.
Making enough money to lead a secure, comfortable and happy life is very important. But, a lot of times, people go too far in this bid to make money. A far more effective option is investing the money you have, even if it might not be a large sum, to make the most of your savings. Ask yourself what’s important about money to you and your financial goals will appear, giving you a clearer picture of how to best use your money to achieve those goals. So, go ahead and start listing down your financial goals to create a blueprint for your vision for your future.