Staying on the right course where your investments are concerned is essential if you wish to see good returns in the future. Typically, investors may invest well, but not with specific goals in mind. Before you invest, many questions may plague your mind, like what to invest in, how much to invest, and for how long to make investments. As most individuals have financial goals to achieve at some point in their future, goal based investing can help investors stay on track with their investments and make wise decisions.
The Nature of Goal Based Investing
From seniors to millennials, everyone is into investing in some way or the other. However, individuals choose different methods to build their wealth and have distinct timeframes to build it in. Many folks treat investment as something they have to do, and have some idea that they are growing their wealth for times to come. Nonetheless, this is a very generic state of mind in most investors. Goal based investing takes a different approach to investment, one that is specific to particular goals and investments aligned to fulfil these particularly.
You may be investing right now, but do you precisely know what you are making investments for? Furthermore, are your investments strategically allocated? If the answers to these questions are in the affirmative, you may be on course where your goal based investing methods are concerned. Unfortunately, for many investors, planning investments in a way that they fulfil certain life goals is far from ideal, so if you are this kind of investor, it’s time to understand how goal based investing can help you attain your financial goals.
The Purpose of Goal Based Investing
Goal based investing is a method by which investments are made in financial instruments like equity, mutual funds, ULIPs, real-estate, etc., and many more, to fulfil certain goals you may want to achieve in the future. Your goals may be to buy a home, or meet the costs of an expensive holiday, or build a corpus for your years of retirement. If you select your investments, keeping your time horizon, amount to invest and risk appetite in mind, in such a manner so as to fulfil your goals, you are engaging in goal based investing. This has the purpose of growing your wealth to fund very specific costs in the future.
If you want a goal based investing strategy to help you to meet your financial goals, you should know what these are first. You must also be aware of the time in which these milestones are to be reached. Finally, you should consider your appetite to tolerate investment risks.
If you want success in goal achievement, you must allocate your assets with a clear and well-defined plan in mind. Moreover, your plan to attain your goals should be realistic, based on the capital you have on hand. Goal based investing is not a child’s game, and you must be certain how you want your money to grow and achieve success while meeting goals. Therefore, you need to know whether you want certain short-term goals or long-term goals achieved. You may want both. You should know what these are:
- Financial Goals for the Short Term – Typically, these may be classified as goals you wish to achieve within a year’s time. For example, it could be the cost of a vacation or buying the latest device.
- Financial Goals for the Medium Term – These are goals categorised between one and five years. These may include the purchase of a car or a home.
- Financial Goals for the Long Term – Long-term goals are those that you may need your goal based investing strategy for. These are those financial goals that you wish to achieve in above five years, like retirement or financing a child’s higher studies abroad.
How to Create Wealth – Managing Investment
In terms of goal based investing, the primary goal is, of course, the creation of wealth for particular needs that you expect to have in the future. How do you create wealth? Not just by simple saving. You need to invest your capital so it grows even more capital over the course of time. Hence, goal based investing can help you to create wealth, make your existing capital grow, when you consider the following while you make your plan:
- Consider the Time You Have – The time factor is important in investment. If you are in your youth, you have a substantial amount of time to grow your wealth. Hence, you may make a long-term wealth management plan. When you are younger, you also have the ability to take risks, and can try equities or hybrid funds for good returns in the long term. In case you have started investing a bit late, you may think of safer investments like fixed instruments to invest in.
- Consider Adding More Investment Capital Gradually – While you are young, you have the potential to reinvest the returns you may make from current investments. Therefore, instead of spending your gains, think of reinvesting them to build more wealth. You can gradually build your capital to invest and gain compounded returns.
- Gauge Future Costs – Prices of goods and services always rise, and this is due to inflation. In your goal based investing plan, you must account for rising costs in the future. For example, the costs of medical care are bound to rise at the time of your retirement, compared to the same at present.
Think of the Future
Goal based investing is all about having enough financial security in the future. The worst thing to happen is to run out of money when you need it most, and this is an issue that many people who do not undertake goal based investing face in life. Goal based investment can make you rich in more ways than one, buying you both material and mental wellbeing.