The Power of Goal-Based Investing

The Power of Goal-Based Investing

Imagine sailing a boat without a destination in mind or a compass. Would you feel lost or unsure of where to turn or when to stop? Without a guide and proper direction, you would eventually end up nowhere, sailing endlessly for days. Your financial journey is not very different. Your financial journey benefits from having a clear destination which is where goal-based investing comes into play. In this blog we will discuss how goal-based investing can help you in various ways.

Goals are tied to your personal circumstances and lifestyle. Defining goals can help you outline what you aspire for and what you can do about them in financial terms.

To illustrate, let’s say you want your child to graduate from one of the top colleges in India. This goal can be defined properly by quantifying it – my child will need 30 lakhs in 10 years to attend one of the top colleges in India. Now that you have given a timeline and value to the goal, you can estimate what you need to do about it. For instance, assuming 10% ROI for 10 years, you will need to put in at least 1.88 lakhs per annum for 10 years to achieve this goal successfully. Hence, goal setting helps structure your goals and helps you plan what you can do ahead to increase the chances of your child graduating from one of the top colleges in India. It aligns your investment strategy for your child’s education with your desired lifestyle, ensuring a smoother journey towards financial success.

3 Steps To a Successful Goal-based Investment Strategy:

  1. Clarity and Prioritization: When it comes to investment decisions, having specific goals in mind allows for better clarity and prioritization. For instance, if you’re saving for your retirement, the investment time horizon, risk tolerance, and asset allocation become crucial considerations. This focused approach helps in selecting the right investment vehicles that align with your objectives, making your financial journey more purposeful. Additionally, a person may have a lot of goals. Setting clear goals helps one distinguish between what is important and what is not. In essence a person can prioritise between a need (saving for a child’s higher education) and a want (foreign vacation).
  2. Focus on Goals and Less on Noise: Goal-based investing encourages a disciplined approach that minimizes irrational behaviour, behavioural biases and unnecessary spending. It instills discipline by setting fixed intervals for portfolio reviews and addressing deviations in asset allocation. By concentrating on your financial goals, the noise of market fluctuations becomes background chatter. As you review your portfolio at fixed intervals or when the asset allocations deviate from your thresholds, you would naturally buy assets that are underpriced and sell assets that are overpriced. This approach leads to less unnecessary actions over the course of the goal as you do not touch the portfolio as long as the portfolio’s asset allocation matches with that of the goal.
  3. More Chances of Achieving Goals: Following a goal-based approach gives you an upper hand– you have a higher likelihood of achieving your financial objectives as you continue investing, behave less irrationally, and limit unwanted churning of the portfolio. Why do people invest? Investing is not merely about growing wealth; it’s about ensuring that you save enough to achieve what you want in your life. In other words, you are essentially investing for goals. And it matters a lot when you have those goals defined. Goal-based investing provides a roadmap for success, increasing your chances of a prosperous financial future.

In conclusion, goal-based investing offers a structured path toward your financial aspirations. It aligns your investments with specific goals, enhances discipline, and positions you as a wiser investor. So, as you embark on your financial journey, ask yourself: Are your goals crystal clear, and is your investment strategy tailored to achieve them? Remember, clarity in goals today ensures financial success tomorrow.

If you have a question, share it in the comments below or DM us or call us – +91 9051052222. We’ll be happy to answer it.

~ Nischay Avichal

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