It’s totally organic to have certain dreams and desires. Investing in a systematic manner is one way to achieve these goals. Giving your investments a target to achieve, on the other hand, helps you appreciate the importance of your investment.
Goal-based investing is a method of making investments after determining what you want to do in the future. Once you’ve mapped out all of your requirements, you’ll have a better idea of how much time you’ll need to devote to each target. Your priorities will also determine the type of risk you can take. The value of goal-based investing is that it provides you with not only a successful investment plan, but also a path to achieving your goals and, as a result, a stress-free future.
What are the benefits of goal-based investing?
Here are five reasons why investing with a clear target in mind is important:
- It provides a purpose to your investments.
- Choose the right investment products.
- Develop investment discipline.
- Attain portfolio diversification.
- Achieve financial independence.
Let’s take a closer look at the points raised above.
1. It provides a purpose to your investments:
When you have extra cash, you may find it hard to understand how to invest it, how much to invest, and more importantly for how long. A target based investing answers these questions because you know the exact amount that is needed and when is needed to meet your objectives allowing you to determine how much you need to invest. Goal-based investing will help you build wealth by ensuring you achieve your financial goals.
2. Helps you in choosing the right investment products:
You’ll be able to pick the right investment items once you’ve resolved the ‘how’ above. After you know your exact needs, you can figure out if you’ll need a life insurance, or if mutual funds are a good investment option for you, and how much money you’ll need to retire comfortably. You can make good investment decisions without following the herd.
3. Helps you in developing investment discipline:
You can start a Systematic Investment Plan (SIP) in a mutual fund once you know your long-term goals, such as your children’s education or your retirement fund. A SIP aids in the development of investment discipline by ensuring that a set sum is invested at regular intervals, resulting in higher returns.
4. Helps You to attain portfolio diversification:
The primary goal of investment is to make more money. You will earn better returns if you match each rupee of your investment to a strategic goal. You’ll almost certainly need a variety of investment items to achieve your goals. This helps you to diversify your portfolio, lowering your risks while increasing your long-term wealth building potential.
5. Helps you in achieving financial independence:
You will gain financial freedom by aligning your investments with clear time-bound financial targets. You should be assured that you can achieve all of your goals without facing any financial problems or tension.
Maximizing the benefits of goal-based investing:
It’s a good idea to assess the current financial condition before setting financial goals. You must decide what you want to do with your money in the long run.
The following are the three types of financial objectives:
Short-Term Financial Goals:
There are targets that will be accomplished within a year, such as taking an international vacation or purchasing a new laptop, or a phone.
Medium-Term Financial Goals:
These usually last between one and five years and involve things like owning a car or paying for your child’s education.
Long-Term Financial Goals:
Long-term goals are those that are more than five years in the future, such as children’s higher education or retirement.
Goal-Based Investing Procedure:
If you’ve defined your current financial position and different target, you’ll need to devise a strategy for achieving them within the timeframe you’ve set. You must comprehend the following:
- Amount needed to achieve your target.
- Amount to either be invested in a lump sum or on a monthly basis.
- Determine the appropriate investment product based on your investment horizon and risk-to-reward ratio.
Choosing the best financial product is challenging and necessitates extensive research and analytical skills. You must keep your savings for a longer period of time if you want to build wealth. This is because you gain the power of compounding over time. Compounding is when the earnings are re-invested in the same financial asset to collect additional gains, resulting in a sizable corpus over time. Investing in a SIP is a simple way to reap the benefits of compounding.
To meet your medium and long-term targets, most experts suggest investing in mutual funds. Several asset management’s companies (AMCs) do, however, sell a variety of mutual fund schemes. It takes a long time and a lot of effort to evaluate and analyze these.
This job is made easier by our patented ARQ mutual fund investment engine. It evaluates various mutual fund schemes using scientific methods. To fit investment advice to your risk appetite, lifestyle, and financial goals, over a billion data points are analyzed.
Read Next: “Gold ETF vs Gold Mutual Fund”
For more information, reach us at [email protected]