What is Goal based Investing ? || Best of Investor Education

Presenting the best of investor education content, #CuratedByKuvera.

In this video by @Aditya Birla Capital(Aditya Birla Sunlife Mutual Fund), we are here to explain about Goal-based investing. This new approach to wealth management emphasises using investments to achieve particular life, such as saving for a child’s school or putting money aside for retirement. Learn more through this video.

We all have financial goals—for a new home, upgrading cars, a kid’s education, a trip to Hawaii, and so on—but most do not invest based on our goals. Instead, we tend to invest in schemes and stocks based on high returns, which is necessary. However, that investment may not be targeted towards a particular or many simultaneous goals.

What is Goal-Based Investing?

Goal-based investing is a renewed process of financial management that prioritises investing to attain the set goals. Parameters like current assets in your portfolio, expense method, risk portfolio, asset allocation, and the short, medium, and long-term goals are looked upon under goal-based investing.

Benefits of Goal-Based Investing

It doesn’t matter your financial goals, which could be for you or your family. But, if you don’t invest in your goals systematically, your financial outcomes will not mature as planned.

This is why, while choosing goal-based investing, it is critical first to identify:

What goal do you need to achieve?

The period within which you wish to achieve the set goal?

The amount you need to invest for the same?

Before determining all these, you also need to remember the current price of attaining the set goal and the rise in its price.

This is where the goal-based investing calculator can help with the near-precise amount you need to invest every month in fulfilling your investment goals.

Take a look at the benefits:

Financial goals enable choosing the right investment products
Once you are sanguine with the amount required to fulfil your financial goal and the period you need to gather the corpus, you can develop an investment strategy. Then, based on the investment outlook and financial goals, you can choose from the asset classes like debt, equity, gold, etc.

For medium-term goals, like purchasing a car or a house, a combination of equity plus debt is fair. Because you have a slightly extended outlook, you can still survive if the market falls or turns volatile. Lastly, for long-term goals, equity is the best option. It focuses on increasing money.

Helps in balancing our investment portfolio

When your investments are in sync with your financial goals, it helps keep your investment portfolio balanced at proper intervals, enabling you to imbibe a thorough asset allocation strategy.

Setting financial goals to avoid unwanted loans

If your investments are not systematically aligned with your goals, the probability of falling short of funds when you need them turns high. For instance, you may fall short of an adequate amount of money in the time of need. In such a situation, taking a loan would become a necessity. The loan will help you achieve your goal at that moment, but you will end up in a debt maze.

Therefore, choosing a goal-based investing planning approach shall always keep you away from taking a loan forcefully.

Fiscal control is maintained

You can still fix situations where you have goals and lack investment, but investing without having set financial goals cannot be fixed, leaving you in a state of despair.

Moreover, staying invested in a particular fund to achieve goals shall be a continuous process, as you know that you must not stop investing to achieve goals.

Therefore, even in the case of market volatility, you would still stay firm and learn to deal with the unfavourable market fluctuations in a good way with the help of a goal-based investing platform.

Goal-Based Investment in Mutual Funds: How Practical is It?

Mutual funds are one of the best investment solutions for different requirements and risk appetites. There are many mutual funds that you can use based on your investment goals.

Let’s glance through some generic goals with an ideal mutual fund choice to invest in to achieve the goals.

Scenario #1: Child’s higher education and marriage

Parents are more concerned about their child’s future, so they wouldn’t want to get into extreme risks with their fund planner for higher education.
Therefore, considering this as a long-term goal, although not as long as retirement, hybrid funds, large-cap funds, index funds, gold funds, etc., are preferred options.

Scenario #2: Planning for retirement

Planning for retirement is a long-term goal. Considering this, investing in multi-cap funds, large-cap funds, mid-cap funds, etc., are preferable.

If you haven’t already started your investing journey, click on the link to ‘Kuvera – Your Safe Space to Invest’:

Original Source Link