9 key steps to master goal-based investing

In life, each of us dreams to attain some landmark accomplishments-fund the education of children, a house, or a comfortable retirement. All that is needed is planning, disciplined savings, and strategic investment. That is what goal-based investing does.

Therefore, goal-based investing is a very strategic approach that will make one understand their financial liabilities for any milestone in life accurately and thus save and invest for them. With goals aligned with investments, you can make a roadmap towards your financial future and will have money at the moment when it is needed most.

Understanding goal-based investing

Goal-based investing starts by identifying and quantifying your financial goals. These may be short-term, like buying a car or taking a vacation; medium-term, like a home purchase or funding your children's education; or long-term, like retiring comfortably.

Once you identify your goals, quantify them. Calculate the amount of money you would require for each goal. Do not forget to keep inflation and time horizon in mind because that will change the amount of savings you will require.

Vivek Jain, Head-Investments, Policybazaar says, “Whether it's buying your dream home, securing your child's education, or planning for a comfortable retirement, goal-based investing encourages you to allocate and invest your funds according to your needs.”

“For instance, if you want to start retirement planning at 35 and can set aside ₹20,000 every month over the next 25 years, at an estimated 12% rate of return in market-linked products, you could accumulate up to ₹3.8 crore as retirement corpus. If you want to secure your children’s financial future, you could consider investment-cum-insurance plans that come with a waiver of premium optional features that will ensure that your policy stays intact in case of policyholder’s unfortunate death and the future premiums are taken care of by the insurer,” he added.

The key steps to master goal-based investing

1. Begin with prioritising goals: Write down all financial objectives. Prioritise them in the sense that you prioritise what is the most important and urgent to be achieved for the goal. This will direct your resources on where to focus the most.

2. Measure every objective: Determine how much it will cost in money needed to meet each of the objectives and also include both inflation and time horizon to the same end.

3. Resource assignment to the objectives: Proper resources should be assigned taking into account the time horizon and the degree of risk for each objective. For short-term goals, you may need to invest in more conservative investments, but you can take more risk with long-term goals.

4. Select the right investment vehicle: Choose investment vehicles suitable for each goal. For short-term goals, it is advisable to use safer options like fixed deposits, short-term bonds, or liquid funds. Long-term goals can be financed with equities, mutual funds, or ETFs.

5. Regular reviews and rebalancing: Evaluate your goals and your investments regularly. Rebalance investments as necessary to ensure these investments remain in alignment with shifting goals and risk tolerance.

6. Invest via automation:So you would like to automate regular transfers of income into investment accounts. This will allow you to save money continuously for your investment for the sake of your goals, although in reality, you will never make an investment decision.

7. Disciplined approach to investment:Never lose track of investment strategy even while you are seeing clear market volatilities, so it does not happen again when you are in mood swings. Mood swings can create serious damage to your long-run financial success.

8. Track and rebalance:You must track how your investments are performing vis-à-vis achieving each of your goals. Rebalance when necessary to get your contributions or your investment strategy back on course.

9. When to get professional assistance: You don't know where to turn next. Seek a financial advisor who, with you on your objectives and risk tolerance, can design a particular investment plan for you to follow.

In conclusion, the ultimate capability of mastering goal-based investing is that you will achieve your life milestones with full financial security. Start early, stay invested for the long term, and use the online calculator to help plan this so you don't only weather the storm but seize the magic of compounding in order to realise your dream of financial freedom. Plan now and take control of your financial destiny.