Goal Based Investment Planning

Goal based investing is a relatively new concept in personal financial planning and for more reasons than one, has become the preferred approach of investors today. This approach emphasizes achieving life goals comfortably as different from focusing on generating maximum returns possible by beating the markets. Since it’s a mechanism for long term wealth creation and is more participatory in nature, it is a rather disciplined way on investing that has quite a few safeguards inherently built-in to the process, for example protecting against impulsive decision making triggered by rapid market movements. This approach focuses on how well was an investor able to meet his goals rather than how well his portfolio has performed against the market average and therefore has a different approach to asset allocation and risk management. To put it simply, Goal Based Investing is to plan and execute your investments for specific expense targets in future.

How much does one needs to invest? Should you be saving what is left after spending or spending what is left after saving? Well how about content living AND financial freedom. When you plan your investments in-line with future expenses you, because of the long term involved, you can make do with smaller contributions which will still achieve your goals, leaving in hand enough money to live on your terms today too.

Let’s see how it works. Everybody has life goals, whatever name it’s called by. You begin by listing out yours. You will need to be very exhaustive though, work it out in as much detail possible and consider as many scenarios as you can. Some examples of life goals are:

  • a) Buying a car
  • b) Buying a house
  • c) Children’s Education – School, College, Higher Studies
  • d) Children’s Wedding
  • e) Retirement

There could be many other small or large expense goals that one could have and would like to be prepared for when the time comes. The key to goal planning is to be able to work out all the factors which will impact these goals and related expenses. For example, your child’s higher education goal could be impacted by factors like his or her choice of course, inflation in education, location of the university etc.

Once the part of listing is over, you will need to put an expense figure to it as on present date and then factor in the inflation in that particular sector to arrive at the plan year figures. Hereafter, based on the goal, the time period available and your risk profile, the all-important asset allocation is done, monthly or lumpsum investment requirements are worked out and the detailed plan is prepared and executed. This execution will need to be monitored to keep a regular check on the portfolio. There will be requirements to make calculated interventions in the same depending upon financial and economic environmental factors where you will need to course correct.

Goal based investing is a fairly promising method of ensuring preparedness for various expenses in life and a financial advisor can help you through the process. Gravity Wealth Management specializes in planning and executing dedicated target based portfolios which will help you achieve your objectives comfortably.

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