Unlocking the Power of Goal-Based Investing

One of the primary advantages of goal-based investing is the clarity it provides. By defining specific financial goals, investors gain a clear understanding of their objectives. This focus helps in making informed investment decisions tailored to each goal.

2. Tailored Investment Strategy:

Goal-based investing allows you to customize your investment strategy according to each specific goal. Different goals have varying time horizons, risk tolerances, and required returns. By aligning your investments with each goal, you can select investment vehicles and asset allocations that are most suitable for achieving those objectives.

For instance, if you have short-term goals like international travel, kid’s school fees, etc., your focus will be on investing the money in safe assets and getting some growth on it. And hence you will go for Debt Funds or even Fixed Deposits.

On the other hand, for your medium-term goals (3-5 years away) like buying a car, you can have a mix of Equity and Debt. That’s because you have a slightly longer investment horizon, and if there is some interim volatility or a fall, you can live with it. So, Hybrid Funds become the right product for you.

And on the other hand, are long-term goals for which you can pick pure equity funds and focus only on growing your money.

3. Helps to identify the required investment amount to achieve your financial goals:

When you do goal-based investing, you will list down the goal you want to achieve, by when you want to achieve it, and the money you will need for it. And while you do it, you will consider the current cost of achieving that goal and calculate the future cost based on the expected inflation.

For instance, let’s assume you want to plan higher education for your child 10 years away. Currently, it costs Rs. 50 lakhs. When you plan for it, you will calculate how much it will cost in the future after factoring in the inflation. So, assuming an average inflation rate of 8% in education, it will cost nearly Rs. 1.1 crore in 10 years. Now you know how much money you will need for this goal. So you can download the Net Brokers app and use the Child Education calculator to calculate the required SIP amount that needs to be invested in mutual funds to accumulate the required corpus assuming a certain annual rate of return.         

4. Helps to attain portfolio diversification:

The primary objective of investing is to earn higher returns. When you match each rupee of your investment to a financial goal, you are able to earn better returns. In most likelihood, you will include different investment products to meet various objectives. This allows you to diversify your portfolio thereby reducing your risks while being beneficial in wealth creation over the long term.

5. Helps to avoid debt trap:

If you do not clearly define your goals and do not invest in them, the chances are that you will not have enough money when the time comes. In such a situation, you might be forced to take a loan. The loan will help you achieve the goal at that point. However, you can end up in a debt trap.

Therefore, it is essential to stay clear of taking loans as much as possible. Take the goal-based investing approach and you will never need to take a loan in desperation.

6. Emotional discipline:

Goal-based investing encourages disciplined investing habits. When you have specific targets to achieve, you are more likely to stay committed to your investment plan. Regularly contributing towards your goals, such as through systematic investment plans (SIPs), promotes consistency in saving and investing. This disciplined approach can help you build wealth over time and avoid common investment pitfalls.

So, you are more likely to deal with adverse market movements in a better way if you follow goal-based investing. This is a massive advantage because keeping your emotions at bay is as important as picking the right investment products in investing.

7. Monitoring and Accountability:

Goal-based investing provides a tangible way to measure your progress. You can regularly track and evaluate how close you are to achieving each goal. This assessment allows you to make necessary adjustments to your investment strategy, contribution amounts, or timelines if needed, ensuring that you stay on track towards your goals.

8. Improved Financial Well-Being:

Ultimately, goal-based investing contributes to overall financial well-being. It provides individuals with a roadmap to achieve their dreams, whether it’s buying a home, funding education, or retiring comfortably. This sense of financial security enhances peace of mind and confidence in one’s financial future.

Key Takeaways from Net Brokers:

• The goal-based investment approach is the right way and very important when it comes to investing in mutual funds. Goal-based investing helps you answer important questions like how much to invest, where to invest, and when to start investing. Moreover, it also gives you a purpose to stay invested.
• Goal-based investments not only help create a significant corpus but also help save money in a disciplined manner over a period of time.
• Linking investments to goals prevents investors from digressing. If you get some extra money from somewhere but don’t have goals or targets, it’s very easy to digress unless you are really disciplined. On the other hand, if goals are clear, chances are that you will want to use the surplus money to give an extra push to your goal-based savings in order to get closer to the goals.
• Goal-based investing is helpful in taking corrective actions. When all investments are linked to financial goals, you can track, review their performance at intervals. Doing so not only allows you to identify underperforming avenues but also helps you correct any deviations that can take you away from the set goal.
• Goal-based investing is a dynamic process that requires periodic evaluation and adjustments. As your life circumstances change, you may need to modify your goals, timelines, or investment strategies.

Mutual fund categories provide a variety of goal-oriented baskets created by experts to assist investors in selecting the best-curated investment mix for their objectives. Download our Net Brokers app and get access to our goal-based calculators like child education calculator, retirement calculator to get started with your goal-based investing.

For more information, get in touch with us today! Download our mutual fund app & start investing for your long-term financial goals.