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Goal Based Investing In 2022: 5 Benefits of Goal Based Financial Planning

The concept of goal based investment planning is one that helps to answer important questions like how much to invest, where to invest and when to start investing – eventually helping us meet our financial objectives. It also does much more. Let’s dive deeper.

The concept of goal based investment planning is one that helps to answer important questions like how much to invest, where to invest and when to start investing – eventually helping us meet our financial objectives. It also does much more. Let’s dive deeper.

What is Goal Based Investing?

We all have a long list of goals we aspire to accomplish in the future. This can include things like purchasing a car, a home, taking a vacation, or preparing for a pleasant retirement, among other things. As a result, it's easy to become overwhelmed and concerned about how you'll fulfil all of your objectives. This is where investing with a goal in mind comes in handy. Goal-based investing entails determining your financial objectives, establishing a schedule for each one, and frequently investing to achieve them. As a result, you effectively give all of your dreams and financial goals a framework.

How to Plan for Financial Goals? 

To begin, make a list of the many financial objectives you intend to achieve across various time periods. Then you must determine how much time you have to achieve your objectives. Next, work out the current cost of each goal once you've established these two - aim and period. To determine the future value of your target, double the current price by inflation.

For example, the current cost of a 10-year-away goal is Rs 20 lakhs. The ultimate objective value, assuming a 6% annual inflation rate, would be roughly Rs 36 lakhs. As a result, you should budget for Rs 36 lakhs rather than Rs 20 lakhs when making investments.

Some of the major financial goals that you may need to prepare for include retirement, children's education and marriage, vacation savings, vehicle or home buying in the short to medium term, tax savings, and regular cash-flows / income planning.

How Investment In Mutual Funds Can Help Meet These Goals?

Mutual funds are excellent investment options for a wide range of financial objectives, depending on your time horizon and risk tolerance. To achieve your aims, you might employ a variety of mutual funds with various investing objectives. Lets us look at some of the best mutual fund options: 

  • Equity Funds: Stocks and stock-related securities are the primary investments of these funds. There are various types of equity funds based on market capitalization classifications and investing approaches. Equity funds might be a smart investment if you have a 5-year or longer time horizon.
  • Debt Funds: Money market instruments, Government Securities (G-Secs), and non-convertible debentures (NCDs) are among the fixed-income securities that debt funds invest in. Debt funds come in a variety of shapes and sizes, depending on their maturity and tenure (e.g. overnight funds, liquid funds, ultra-short duration funds, low duration funds, short duration funds, medium duration funds, long duration funds, etc.) and credit risk profiles (e.g. overnight funds, liquid funds, ultra-short duration funds, low duration funds, short duration funds, medium duration funds, long duration funds, etc). (e.g. overnight funds, liquid funds, ultra-short duration funds, low duration funds, short duration funds, medium duration funds, long duration funds, etc). (For example, gilt funds, corporate bond funds, credit risk funds, banking and public-sector debt funds, and so on.) For short and medium-term goals spanning from a few months to a few years, you can choose the appropriate debt fund categories.
  • Hybrid Funds: The goal of hybrid funds is to invest in both fixed income and equities. Depending on their asset allocation methodology, hybrid funds come in a number of shapes and sizes (e.g. aggressive equity-oriented hybrid funds, dynamic asset allocation funds, equity savings funds, conservative debt-oriented hybrid funds, multi-asset funds, arbitrage funds etc.). You can invest in suitable hybrid funds based on your risk tolerance and time horizon. If your risk profile is moderate but you have a long-term goal in mind, hybrid aggressive funds, for example, can be ideal. If you're saving for a 12- to 18-month family vacation, on the other hand, you may use arbitrage money.
  • ELSS Funds: For tax planning purposes, you can invest in a mutual fund called Equity Linked Savings Scheme (ELSS). Section 80C of the Income Tax Act 1961 allows you to deduct up to Rs 1.50 lakhs from your taxable income each year. You can invest for a short (3 to 5 years) or long (more than 5 years) term, depending on your financial goals.

#1 Maintaining Discipline

Investing without goals is a less disciplined way of investing. Many investors start the journey but end up losing hope during market declines or stop investing over time due to other commitments.

Goals help investors stay the course and keep investors disciplined as they can measure and track progress on a monthly or quarterly basis.

A set of clear goals helps us strategize accordingly and also improve budgeting. As a result, investors deal with adverse market movement in a better way. This is a crucial advantage, because not only do investors sometimes lose hope, but emotions can also drive them towards poor decisions.

Financial goals enable investors to remove greed and fear by keeping investing disciplined and long-term.

#2 Starting Early

Success in investing is not determined by how well you invest but how early one invests. The well-known Warren Buffett, who started investing at the age of eleven, is a great example. His biggest regret until today is not starting earlier.

Consider an example where two persons start investing at different ages, say, at twenty and thirty years of age. The portfolio value for someone who started investing at twenty would be significantly larger than someone who started a decade later. Here's a graph exploring their progress over time:


Comparing Portfolio Growth when starting at 25 vs 35  [Based on data from USNews]

#3 Identifying Risk Profile

Behavioral finance tells us that many investors tend to be greedy in rising markets and fearful in down markets. This behavior leads to investors buying risky securities at high prices and selling them when markets perform poorly, leading to losses.

A disciplined investor makes decisions with a long-term perspective instead of panic-induced exits and entries. In the long term, markets have always gone up anyway.

One way of doing this is to have a risk profile and sticking to it for long periods. Switching risk profiles by being conservative during weak markets and aggressive during bull markets is a sure-shot way of destroying long-term wealth.

If an investor chooses to have 60% in equity and the balance in Bonds, Gold, and other asset classes, it's important to stick to the 60% equity at all points in time.


#4 Tracking Progress

No planning is complete without tracking progress. To quote Terry Pratchett, "if you don't know where you're going, you're probably going wrong."

Planning helps us ascertain how far we've come, but it also helps us analyze and iterate our strategy for future outcomes.

Many investors may not recognize the power of compounding unless they witness it in action on their portfolio over the long-term. Plus, here's another aspect to this - a sense of accomplishment.

#5 Diversifying Portfolios

There are numerous advantages of having a diversified portfolio. A diversified portfolio helps mitigate the risks of investing in one single asset class or a few stocks. Diversification enables the achievement of goals without too much volatility.

On Specific Goals

  • How does having a short-term goal or a long-term goal affect financial planning?

For short-term goals - investors should have a higher allocation towards less risky assets such as Debt or cash (liquid funds). Investors should be aware that long-term debt funds should only be used for long-term goals. Long-term debt funds can sometimes be riskier than equity investments.

For long-term goals (longer than five years) - investors should embrace equity investing by having a higher allocation towards equity as an asset class.

In the case of goals such as foreign trips, international products and services, and overseas education - investors should use international funds to plan for the goals. Global funds invest in high growth stocks and invest in currency, which is important if the spending of the goal happens in the foreign currency.

Goal Based Investing Is Key To Financial Success

In conclusion, goals-based investing is the best way to maintain discipline, keep emotions in check, and solve the problem of how much and what funds to invest. Check out the Glide Invest app to kickstart (and elevate) your goal based investment journey!


Q1: Why is it vital to invest with a certain aim in mind?

A1: Many questions arise in the minds of investors, such as how to invest, where to invest, asset allocation strategy, and so on. To drive through these questions, they must have a financial strategy in place before beginning their investment adventure.

Q2: How do you go about making a goal-oriented investment?

A2: Every person has financial objectives that must be met in the short, medium, and long term. Goal-based investment is defined as investing on a regular basis in order to achieve a certain financial goal. 

Q3: Goal Based Investing: Can it be relied upon??

A3: The benefit of goal-based investing is that it allows you to make decisions based on solid evidence. When you factor in predicted returns on equity, volatility, and inflation after considering empirical evidence over a longer period of time, for example, your assumptions get more fine-tuned, and your findings become more attainable.

Q4: How can Goal Based Investing be directed towards tangible outcomes?

A4: One of the most significant contributions of goal-based investment is this. You know the financial implications of your long-term goals because you know what they are. You know the concrete objective you need to work towards because you know the monetary outcome of that goal. With that tangible goal in mind, you can plan your finances, alter your assets, and track their success. Vague goals aren't going to get you very far, therefore your investment will become more haphazard rather than focused on your goal.

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