“If you don’t know where you’re going, any road will get you there.” – Lewis Carroll
Well, any road will get you to where you want to go. But until you know where you are going, there is no way to compare if one route is better than the other. Similarly, when you are investing you should have an investment roadmap to help you reach your financial goals. You are like a car with wheels pointing in different directions, pulling you in various ways.
So, linking your investments with your financial goals will help you achieve your goals more efficiently, be it saving for your child’s education, building a new house, or saving for your retirement.
Goal-based investing is imperative to investment success. Unfortunately, most Indians begin investing as a tax-saving endeavour, and this process rarely changes. Very few clearly know why they want to invest and devise a plan accordingly.
Very often, without a goal or investment direction, you may be tempted to lock your money in fixed deposits, which could be the easiest investment option because it is tried and tested and often heralded as the best investment plan by our elders. However, with some knowledge, you will know that fixed deposits provide returns below inflation levels. In reality, your money erodes
Other popular investment options are gold and property. While both make suitable components in your investment portfolio, they should only be part of your investment bucket because if you have short-term financial needs, you cannot sell your property to get the required cash.
You need to invest in different buckets to meet different financial obligations. If you haven’t started already, don’t worry. You can start now.
Evaluate Your Investments
Start by taking stock of everything that you own. From fixed deposits and gold to any stock market investments that you have, make a list of your assets. Maintaining an excel sheet can help you keep track of all your investments in one place.
Once you have your investments in one place, list the goals you want to achieve. These should be segmented into short-term goals, mid-term goals, and long-term goals. A short-term goal could be a foreign vacation with your family in a year. The best way to save for this is through debt mutual funds. A plan to buy a car with a full down payment could be achieved through a medium-term goal. You can allocate 10-20% of your monthly surplus towards this by saving in hybrid mutual funds. A long-term goal can be to save for a retirement corpus. Diversify this investment among equity mutual funds, PPFs, and other investment instruments.
Create an Emergency Fund
Apart from saving for specific goals, you should also have an emergency fund with at least six months’ worth of expenses. This should be in liquid assets, such as fixed deposits or debt mutual funds.
Reallocate Your Assets
Once you have goals, you can save towards them. You should also consider reallocating your assets according to your goals. If you have too much money in fixed deposits, consider moving about 50% to equities. If your money is locked up in real estate, try to use rental income to invest in other avenues.
Once your wants and needs are taken care of, realign your goals regularly. Rebalance your portfolio at least once yearly to ensure you are on track to achieving your goals.
Your investments should always align with your short-term, medium-term, and long-term goals. You should also have a solid emergency fund. Saving without goals is like a headless chicken running in all directions. If you don’t have an investment direction yet, you can contact Geojit to help you plan your investments according to your different investment goals.