Image of a man climbing on the graph of progress.

What is Goal Based Investing?


Posted On : 2021-05-13

Author : Rajesh Kumar


Usually, all of us individuals save for our financial goals. We set aside a part of our earnings for certain financial goals. But is the saving enough?

For an individual, Financial goals are the personal, and individual should have clear objectives. First, we have set for how we'll save and spend money. We can hope to achieve in the short term or further down the road. Either way, it's often easier to reach our goals if we identify them in advance.

Now Questions are coming in mind, what is long term, what is short term. How we can define it for financial Objectives.

In the context of investment strategy, the Financial Industry Regulatory Authority (FINRA) defines the three types of financial goals as long-term (more than 10 years), mid-term (3 to 10 years) and short-term (less than 3 years).

As per the RBI, the targeted inflation rate in India is set at 4%. It means every year the value of your
Rs. 100 decreases by 4. Rs. 100 today will be worth Rs. 96 a year from now, Rs. 92 two years from
now and so on. Due to inflation our saving, falling in value year after year, eventually making you save more than what you receive in 10 years.
The better route to plan your financial goals is to do it through goal-based financial planning. This
means planning your expenses, saving a certain amount, and investing that amount based on your
financial goals and time horizon.

Suppose you have additional savings of Rs. 10,000 every month that you want to invest to buy a car
worth Rs. 25 lacs within the next 15 years. For this goal, you will have to invest your monthly saving
of Rs. 30,000 at an annualized rate of 13% to reach the investment corpus of Rs. 25 lacs in 13 years.
Not knowing your goal will lead you to not know your return objectives and holding period, which
further leads to poor financial planning.

How is Goal-Based investing different?

When Individual go for investment without GOAL, they choose MUTUAL FUND on the basis of google information only. This might result in you not being able to withdraw your money when you need it because of a shortfall in the portfolio due to losses. The unsatisfied individual then has to delay his goals for some time or take loans to meet the needs.

When it comes to goal-based investing, individual know their investment horizon and the returns
they need to get to achieve the goals, and they need not outperform the market. Goal-based
investing is relatively more stable in providing you returns because you can alter your portfolio if
your goals change. You can go for a more or less risky investment if your risk-taking capacity
changes. If you want to achieve your goals faster than what you wanted earlier, you can invest in a
fund with higher returns, instead of staying committed to one fund.

7 Examples of Personal Finance Goals

  • Start an Emergency Fund. Life is unpredictable, and it's important to be prepared.
  • Pay Off Debt.
  • Save for Retirement.
  • Strive for Homeownership.
  • Pay Off the Car loan
  • Invest in a College Education.
  • Plan for Fun.

How do you set smart financial goals?

  • Make Your Goals Specific. For this you use optymoney calculator.
  • Build Measurable Goals. Measurable goals are easy to track because they're specific to start with.
  • Motivate Yourself with Attainable, Action-Oriented Goals.
  • Keep Your Goals Realistic.

Stay Focused with Timely Goals.

Expert Assistance

Expert Assistance

Need Assistance for