Goal-Based Investing – How to Assess and Implement Financial Objectives

Aim-based investing is an investment strategy that takes into account the investor’s ultimate financial goal, allowing the investor to make investments that match the final goal.

The purpose of this technique is to systemize savings over a defined time period to deliver predicted benefits by tying investments to a goal. In this post, we will discuss the Objective Based Investment strategy, which may assist in achieving the final goal in a systematic manner.

As an investor, you may be tempted to put your money into fixed deposits, mutual funds, public provident funds, equities, or real estate. However, if the investments are not related to a purpose, they may become random and irregular.

You may limit this uncertainty with goal-based investing by disciplining your investments to enable the realisation of a predetermined end objective.

For example, you may put Rs. 50,000 into a specific SIP on the first of each month for 5 years in order to buy your dream automobile. This technique is a goal-based mutual fund investment since we have a definite end goal (a car) and a disciplined investing system (Rs. 50,000 on the first of each month for 5 years).

How to Assess a Goal-Based Investing Strategy

1) Determine the amount of time and money required.

For example, if your financial corpus for investment goals is to purchase a home, save for retirement, or arrange for your children’s overseas school, the requirement may be somewhere between 10 and 20 years away.

Because they demand a separate quantity, an investor cannot approach these as out-of-pocket expenses that may be indulged.

2) Consider the current price.

For example, if you want to invest in a car in the next three years at the current price of INR 6 lakh, estimate the rate of inflation at 6% when you begin investing. This implies you’ll need to save roughly INR 7.15 lakhs in three years to buy your dream automobile.

3) Calculate the future cost

To plan your aim, you should try to predict the cost of anything ahead of time, that is, predict if the price will rise or fall in the future.

4) The correct time to invest is now

There is no ideal period for you to initiate your investing plan. As for an ideal situation, when an investor plans their goal, that moment is the best time to initiate your investment.

How to Put a Goal-Based Investing Plan in Place

1) Short-term Objectives

These are the objectives that must be fulfilled during the next 2-3 years. Because there isn’t much time, an investor must seek out an investing strategy that protects the invested cash.

Begin by establishing a fixed amount based on the projected returns.

Debt mutual funds may provide an investor with respectable short-term returns.

A recurring deposit might be a choice if you desire a risk-free option because investing in shares can be dangerous.

2) Mid-Term Objectives

These are goals that must be met over a period of 3-8 years and give an investor with a broader range of investing options.

Depending on your risk tolerance, you might invest in an 80:20 debt and equity mutual fund mix or in the equity index.

An ambitious investor, on the other hand, may opt to invest in an equal mix of both to attain their medium-term aim.

3) Long-term Objectives

These are flexible goals that should be accomplished over the course of 8-10 years. Having said that, an investor may afford to incur risks due to the flexibility of time.

To attain the requisite amount, you might consider investing in stock mutual funds or direct shares. Although equity investments are risky, they are ideal for long-term objectives.

Another option is to do-it-yourself, providing you do a good job.