Get All Access for $5/mo

Everyday Money: Why Practicing Goal-Based Investing Is a Must It is an important strategy to help you build enough wealth for all your needs

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

pixabay

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 the flight tickets and hotel. 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.

Amidst the excitement of the vacation, you forget that you had to pay fee for an online marketing course you have to enroll in next month. Lack of goal-based planning can lead to such mistakes.

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.

Map out your goals and estimate the corpus needed for each goal. This will give an idea about for how long and how much you need to invest.

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. For instance, a short-term goal (1-2 years) calls for saving in debt and fixed income instruments. A mid-term goal (3-5 years) should be a mix of equity and debt whereas a long term goal (>5 years) can have maximum exposure in equity.

Related Read: Why Is Asset Allocation Important

Last, goal-based investing helps inculcate investment discipline. Being committed to your goals will make you to save and invest regularly and hence, improve financial management.

News and Trends

"45% of All Ongoing Hydropower Projects in India are Ours": Patel Engineering

Patel Engineering reported a turnover of INR 4,400 crore in the last fiscal year, with a projected 10 per cent growth for the current year.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Side Hustle

'Hustling Every Day': These Friends Started a Side Hustle With $2,500 Each — It 'Snowballed' to Over $500,000 and Became a Multimillion-Dollar Brand

Paris Emily Nicholson and Saskia Teje Jenkins had a 2020 brainstorm session that led to a lucrative business.

Leadership

Visionaries or Vague Promises? Why Companies Fail Without Leaders Who See Beyond the Bottom Line

Visionary leaders turn bold ideas into lasting impact by building resilience, clarity and future-ready teams.

Science & Technology

5 Rule-Bending AI Hacks to Make Your Mornings More Productive and Profitable

By 2025, AI will transform productivity by streamlining workflows and cutting costs. Major companies like Microsoft, Google, and OpenAI are leading the way, advancing AI into "Phase 3," where tools act as digital assistants. Discover 5 AI hacks to boost efficiency and redefine your daily routine.

Living

70% of Small Business Owners Experience Monthly Burnout. Follow These 3 Rules to Avoid the Same Fate.

Here are three guidelines to help entrepreneurs achieve balance, growth and success in both their professional and personal endeavors.