Goal Oriented Investing – A Good Idea ?

Goal Oriented Investing

Goal oriented investing, a new form of value investing,  offers a dominant wealth creation tool to help clients protect themselves against uncertainty and market fear.  This new investing method works by managing human preferences, unfairness and behaviors that can weaken their financial  growth. Goal oriented investing is a valuable concept that help clients to invest according to their unique needs, their desires and time sphere in a way that encourages them to look beyond market instability.

To be reasonable, goal oriented investing helps investors to think through their priorities, identify their goals and gives them a decisive power of what is more important, rather than attempting to time the market. Goal oriented investing simplifies the process, eliminates the information overload and aligns how we naturally think and how we save and invest. The purpose is to help you to reach your goals by becoming a better investor and taking ewer risks. Goals oriented investing also recognizes that investors have multiple and sometimes conflicting goals. Rather than pooling all assets of a client into a single portfolio there must be a separate portfolio “bucket” for each goal. Whether a client needs to build up assets for retirement, save for a vacation home, build a legacy for heirs, or achieve any other number of goals, an investment strategy can be specifically tailored to each goal.

Have a look at this interesting video talk regarding goals based investing!

Goal based investment doesn’t rely upon any expert, but can be very much DIY’ed by the investor himself via some basic advising techniques. It doesn’t have to be stocks that mint money all the time, neither it has to be a deep value investing research working on mutual funds vs stocks etc.

It can be as simple as a recurring deposit or a ULIP or composition of a few mutual fund SIP’s, whose ultimate aim is to fulfil every goal (short or long term) that you desire.

Goal oriented investment approach focuses on following:

1) It helps in choosing the right investment ways

Goal oriented investing helps to select correct investment options that tend to be a model portfolio. We get to choose the level of insurance needed, contributions to a SIP, the policy term, contributions to a retirement fund, etc. This helps us in choosing the right allocation for your investments best suited to your risk profile. 

Unlike today’s investment popular and much advertised techniques that focus on just the idea of wealth creation, goals based investing leads to more realistic results.

2) Disciplined Investment

Dinesh invested in a SIP for a 15 year term for his daughter’s higher education. His first priority is to save for his daughter’s education which made him stick to the SIP plan for a long period even at the time of market instability. With a disciplined investment, the amount he received was significant enough to secure his daughter’s future. Though because of pre decided goals and an investment portfolio meeting such goals helps us in adopting a disciplined investment approach which give up better returns.

3) It ensures good returns through portfolio diversification

Allocating important goals and investing in each goal individually helps in availing good returns. With each goal having a different investment, your portfolio becomes diversified and reduces intrinsic risk.

4) Financial choice

Goal-based investing makes us financially free all in all, by selecting the right instruments, disciplined investments, by getting investment solution, and portfolio diversification

Benefits of goal oriented investing:

1) Goals based investing is intuitive:

We are outcome focused, so it is quite natural how we think about investing. We tend to classify things in terms of reaching goals. Like, buying a new plasma TV produces different emotions than paying for our children’s education. Having separate investment accounts keeps these two very different goals separately.

2) It is easy to track your growth

As each investment account is for a particular goal, thus it shows right path and you can instantly see how close you are reaching each of your goals.

3) Fewer risks

Each account will be invested based on when you need the money and how close you are to get the money to reach your goal. Thus, you won’t unknowingly take more risk than you need for any of your goals.

4) Match assets and liabilities, thus avoid debt

Forming of Goals in investing make it easier to close the gap between the money you can afford to spend and the money you want to spend.  By clearly earmarking the assets of today to the liabilities of tomorrow you will be ensured that you are not going to go into debt or fail at those goals.

For example, if you fail of your target or goal, like saving $20,000 for a lavish vacation, you have to make decision whether to make up the loss with credit or cut on what you can afford. When you use credit or suddenly cut back, you are using a form of debt. The first one is financial and the other one is psychological. So, goals help you clear your intentions without incurring any kind of debt.

5) Spending the amount saved in goal setting

There are people who actually feel guilty or not comfortable while spending large amounts of money. Eventually, this is very true when it’s for a planned, known expenditure. When it comes to spend your savings from an account specifically mark down for that purpose, you’re not overspending it. Goals also make it more likely you only spend the amount saved on the goal, rather than spending out a lump sum from your savings account.

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