goal-based-investing

Goal-based Investing and various investment products

Many financial planners are using Life planning along with financial planning for their clients.

What is life planning?

You can make out the meaning from the word itself. Life planning is planning your life goals and conciously deciding about future plans

Everyone plan for their life subconsciously. They don’t try to bring it on paper and don’t consciously think about it. Life planning is all about getting conscious about your future.

Uncertainties will come, but Planning will help to craft an strategy to deal with it.

I have seen people who are doing a job currently, but they want to start a startup. Still, they are not doing it. Because they are not consciously thinking about it and don’t even have a plan to leave the job and plan for substituting income.

For example

Raj is 25 years old and has started doing a job in MNC as an IT engineer. He is having a good package of 12 Lac p.a. Since childhood he loved computers, so he loves his job as an IT professional. He is currently living in a little backward and industrial area. He wants to shift to a good locality.

Since his college days, he was passionate about sports bike. So, now he is thinking to buy a good sportbike. Raj wants to achieve all his dreams but the problem is that he is not consciously aware of it. So, Raj should first write it down all the goals that he wants to achieve.

Life planning includes:

  • Whether you want to stay in the same career?
  • What are your dreams related to material items like house, vehicle, vacations?
  • What are your plans to increase your income?
  • Any plans for side hustles?

These are some fundamental questions whose answer should be with you. We all plan, but just in our mind. Bringing your dreams and future plans in paper will help you to take the decision.

Action-oriented plan backed by written dreams is what you need.

Take a paper and pen and write your life plan. Don’t expect any fixed format, write in whatever way you want.

Life Goals

Life goals include your marriage planning, foreign vacation, Down payment of 2nd home, Purchase a car etc.

Again just writing life goals is not important. To decide proper investment vehicle, you should have overall idea about your goal.

Any financial goal investment can be determined by following this steps:

  1. Determine goal you want to achieve.
  2. Define when you want to achieve your goal and time period left
  3. Current value if your goal i.e. value of the car at present that you want to purchase after 3 years (Also consider other expenses related to it)
  4. Inflation rate
  5. Value of your goal in future.(Current value + inflation)

After following this steps, you will have a future value of your goal. This will be base for determining investment value.

Example:

Purchase a Car:

I want honda city after 3 years. Current value of the car is 10.50L. Considering automobile inflation rate, after 3 years the value of the car will be Rs. 13,97,550. So, planning should be such that after 3 years you have Rs. 13,97,550.

Divide your goal into 3 categories:

  • Short term goals: less than 2 years
  • Medium-term goals: 3 to 7 years
  • Long term goals: more than 5 years

Investment options available in India:

  • Equity:
    • Direct equity- Stock market
    • ULIPs
    • ETF
    • Mutual Funds
      • Equity funds
        • Sectoral funds
        • Equity diversified funds
          • ELSS
          • Non-tax saving funds
          • Hybrid funds
        • Mid/small-cap funds
      • Index funds
  • Debt:
    • Fixed Deposit
    • RBI Bonds
    • Insurance policies
    • Liquid funds
    • Gilt funds
    • Public Provident Funds
    • Employee Provident Fund
    • NPS
    • NSC
    • RD
    • Sukanya Samriddhi Scheme
  • Cash
  • Real Estate
    • Real Estate Investment Trusts
    • Commercial Plots
    • Real Estate mutual funds
    • Residential Property
  • Commodities
    • Gold
      • Gold ETFs
      • Gold mutual funds
      • Gold coins
    • Silver bars
    • Others

There are many other investment options available. I have named some of popular and relevant to your life. It’s not necessary that you should invest in all financial products available in the market.

Connecting your goals with Invetments

From the following options given, you should select right investment option as per your goals.

You should consider two parameters:

  • Risk

The risky asset should be selected for the long term goals only. Because in the short term due to fluctuations, you may not be able to achieve your goals

  • Return

Select an asset class with less return and safety of principal for short term goals.

Asset Class Return expected
Equity 10% to 15%
Real Estate 6% to 11%
Commodities Upto 10%
Debt 3% to 6%
Liquid 6% to 8%

Shorterm goals investment strategies:

For short term goals, don’t invest in equity. For for debt funds and liquid funds. You can also invest in Fixed Deposit or Recurring deposit. See, to decide a investment product, you should have overall knowledge of product.

Medium-term goals:

Hybrid funds, Largecap funds or direct equity can be best for medium-term goals. Here you should strategically allocate your investment between equity and debt. Investing in only equity is very risky for your financial goals.

Till now, you may be investing in the stock market to get good returns. But when you have some future plans and you are following goal-based investing, only equity is dangerous.

You can have 40:60 equity and debt allocation for medium-term goals

Remember that this allocation is standard. As per your risk aversion, you may decide your own asset allocation.

Long term Goals

Longterm goals can have 100% equity allocation. But personally I don’t suggest to for it. Have at least 20% of debt allocation. When the market is down, debt allocation will help you with downside risk.

Start saving for your goals

Once you are ready with investment option and financial goals. Its time to take action.

Download any financial calculator. All works well. I have been using Financial Calculator- India since long.

Open the calculator and feed the following amount:

  • Amount required
  • No of years
  • Return expected
  • You’ll get a monthly SIP amount.

You should start investing monthly to achieve your financial goals.

Investing regularly is the only way out when you have fewer resources. Try to increase the investment amount from time to time. If you get bonuses or extra profit, make sure that you invest rather than spending it on wants


edc6d5bbd2fa09b7d6842f5a0bbc38e8?s=96&d=mm&r=g - Goal-based Investing and various investment products

Jigar Chavda

Passionate young guy for personal finance, wealth creation and marketing. He is following his dream and passion to be writer, speaker, blogger and advisor.

2 Comments

  1. Drashti Darji 1 Apr, 2020
    • Jigar Chavda 1 Apr, 2020

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