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

FinX and FirstClub Raise Early-Stage Funding

The startups listed below have disclosed investment rounds.

News and Trends

Talent, Digital Infra, Policy, and Startups Driving India's GCC Ecosystem

By leveraging its demographic dividend and evolving policies, India is uniquely positioned to become the preferred choice for global enterprises seeking scalability, resilience, and a future-ready operational base.

News and Trends

Kalaari Capital's CXXO Initiative Sheds Light on Women Entrepreneurs' Struggles

The report highlights key findings on the gender funding gap, unconscious biases, and the resilience of women entrepreneurs.

Growth Strategies

Indian Graduates' Employability Rate Reaches 54.81 per cent: Report

By addressing regional disparities, fostering gender diversity, and equipping graduates with both technical and soft skills, stakeholders can harness the full potential of the nation's workforce.

News and Trends

Uber Launches Moto Women in Bengaluru, Connecting Female Riders with Female Drivers

Uber Moto Women aims to ensure safety with real-time trip sharing, anonymised contact details, and RideCheck monitoring for irregularities. It also offers 24x7 priority support via Uber's Safety Helpline for women riders and drivers.

Entrepreneurs

Skills for the New Age Wedding Entrepreneur

These key skills are essentials for wedding entrepreneurs today, but when supplemented by refined taste that lends itself well to curating ideas for every budget, they make for an exceptional bouquet of services