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Business News/ Money / Personal Finance/  9 key steps to master goal-based investing

9 key steps to master goal-based investing

Goal-based investing involves strategic planning, disciplined saving, and strategic investing for achieving financial milestones like buying a home or retiring comfortably.

Mastering goal-based investing empowers individuals to achieve life milestones with confidence.

In the journey of life, we all want to achieve important milestones, whether it's buying a home, funding our children's education, or retiring comfortably. However, achieving these goals requires more than just wishful thinking. It demands careful planning, disciplined saving, and strategic investing. This is where goal-based investing comes into play.

Goal-based investing is a strategic approach that helps individuals accurately assess their financial liabilities for various life milestones and accordingly save and invest for them. By aligning investments with specific goals, individuals can create a roadmap for their financial future, ensuring they have the necessary funds when they need them the most.

Understanding goal-based investing

Goal-based investing starts with identifying and quantifying your financial goals. These goals can be short-term, such as buying a car or going on a vacation, medium-term, such as purchasing a home or funding your children's education, or long-term, such as retiring comfortably.

Once you have identified your goals, the next step is to quantify them. Determine the exact amount of money you will need to achieve each goal. Consider factors such as inflation and the time horizon for each goal, as these will impact the amount you need to save.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. Identify and prioritise your goals: Begin by listing down all your financial goals. Prioritise them based on their importance and urgency. This will help you focus your resources where they are most needed.

2. Quantify each goal: Determine the exact amount of money you will need to achieve each goal. Take into account factors such as inflation and the time horizon for each goal.

3. Allocate assets for each goal: Based on the time horizon and risk associated with each goal, allocate appropriate assets. Short-term goals might require more conservative investments, while you can afford to take more risks with long-term goals.

4. Choose the right investment vehicles: Choose investment vehicles that are appropriate for each goal. For short-term goals, consider safer options like fixed deposits, short-term bonds, or liquid funds. For long-term goals, you can consider equities, mutual funds, or ETFs.

5. Regularly review and rebalance: Review your goals and investment portfolio regularly. Rebalance your portfolio as needed to ensure it stays aligned with your changing goals and risk tolerance.

6. Automate investments: Set up automatic transfers from your income to your investment accounts. This ensures that you consistently contribute to your goals without having to actively manage your investments.

7. Stay disciplined: Stick to your investment plan, even during periods of market volatility. Avoid making emotional decisions that could derail your long-term financial goals.

8. Monitor and adjust: Regularly monitor the progress of your investments towards each goal. If necessary, adjust your contributions or investment strategy to stay on track.

9. Seek professional advice if needed: If you're unsure about how to proceed, consider seeking advice from a financial advisor who can help you create a customised investment plan based on your goals and risk tolerance.

In conclusion, mastering goal-based investing empowers you to achieve your life milestones with confidence and financial security. By starting early, staying invested for the long term, and using online calculators to plan effectively, you can navigate market fluctuations and harness the power of compounding to attain financial freedom. Start planning today and take control of your financial future.

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Deepika Chelani

A business media enthusiast. She covers personal finance beat for LiveMint.
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