It is an important strategy to help you build enough wealth for all your needs.
Why should you invest?
The most common answer to this question is to save and grow money. That’s a valid answer but saving money without a plan is akin to taking out your car on a drive without knowing your destination. Without a destination, you cannot decide which route to take and for how long do you have to drive.
Similarly, you need to have a goal for your investments to plan your finances better. For instance, you have accumulated Rs 1 lakh by investing in a mutual fund. After meeting a colleague who has just returned from a foreign vacation you are tempted to go yourself. You redeem your mutual investment to book flight tickets and hotels. For the rest of the bookings, you decide to take a travel loan, which means you will pay EMIs for the next 6-8 months.
- What is goal-based investing?
It’s an investment approach where you invest with the target of achieving specific goals, such as saving for a house, vacation or building a retirement corpus. The objective is to invest systematically as per your risk profile and time horizon of the goal instead of chasing returns or beating the markets.
- Benefits of goal-based investment
Foremost, goal-based investing gives a purpose to your investments. When you have a clear idea about your goals, you will know how much to invest and for how long. This also means that you are less likely to get affected by market movements and make impulsive decisions.
Second, you can manage asset-allocation in your investment portfolio better when you have defined goals. Investment horizon (short-, mid- and long-term) is one of the most important factors to choose suitable products for your investments.
Last, goal-based investing helps inculcate investment discipline. Being committed to your goals will make you save and invest regularly and hence, improve financial management.
Source: www.entrepreneur.com
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