Why Investing for Goals is the Best Way to Invest?
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Having a purpose for investing and creating wealth is akin to having a purpose in life, without one you would feel aimless and easily wander.
And this applies to any stage in life - young-earner, young parents, middle-aged, or retired.
What are the Investing Goals? Absolutely Anything
If you have just started earning, as a 20-something living an ‘instant’ life, you are likely to have several aspirations such as travel, gadgets, car or bike or pet passions that you would like to pursue. 5 to 10 years later, your financial needs could change to purchasing a home, providing for children or parents, annual foreign vacations, etc. Much later in life - higher education for children and your retirement. Finally, just retirement. While these are generic life goals, you could be aspiring for a high-end bike or car or even a boat or a world tour or a destination wedding or your very own hand glider.
For this, you could be saving some amount from your income every month. But if you are not, how can you go about aligning your money to your goals. And if you are, are you making the most of your money?
First Things First
1) Make a list of your goals - immediate, near term, and long term
Tip - creating a fund that comes to your rescue in case of job loss or healthcare emergency should be a goal
2) How much can you set aside after taking into account your expenses?
Tip - Do a budgeting exercise, check if you can save a little more by trimming some expenses
3) Depending on how much you are able to set aside every month, prioritise your goals and allocate your savings
Tip - if you are a young earning person, you’ll need to set aside very little for retirement but more for a shorter term goal like a bike or car. Online calculators can help you arrive at the numbers
4) Where to put your money? Where it will work hard 24X7.
The first thing you should consider after knowing your goals is which asset classes will you need.
What is an asset class you ask?
An asset class is a group of similar type of investments. For example, under transportation, 4 wheelers is a type of vehicle, as are 2-wheelers and they often serve different purposes. Similarly, all investments that give a fixed return (FDs, most debt funds, NCDs, bonds) are part of one asset class. Other asset classes include equity (stocks, shares, mutual funds, etc.), real estate (commercial, residential), and cash (bank account, cash).
The right asset classes are needed for each goal as the timeframes as well as the returns needed to get to the goal would differ with the goal. One one hand, a short term goal such as a vacation in the next three years will require you to go for a stable asset class such as fixed income or debt. Retirement, on the other hand, will need an asset class such as equity which can beat inflation because when you are talking decades, inflation is your biggest foe.
Investing in mutual funds will not only help you invest in the right asset class but also do it with professional guidance. It will grow your money that will help you achieve your goals, big or small. It would also be a good idea to get a financial advisor if your goals are complex and need intricate planning. A good and unbiased advisor can really make a difference.
5) What are mutual funds? How to select suitable mutual funds? How much to invest? When to invest? Why mutual funds?
Since you are reading this online, on your tablet, phone or laptop, you also have access to online financial services platforms that make all of this super simple. From why mutual funds to withdrawing your accumulated wealth and everything in between is available with a few taps, literally.
If You Invest for Goals
Not just your money but your time and the process of decision-making aligns to successfully achieving the goal. Without a goal or purpose, you’d be more concerned about every rupee change, positive or negative i.e. everyday market fluctuations and decide to invest or withdraw based on these temporary events. This will work against your best interests and may very well prevent you from achieving your goal.