By Apoorva Mandhani
[su_quote cite=”Ralph Seger”]An investor without investment objectives is like a traveler without a travel destination.[/su_quote]
Just like every important journey has a destination, every investment must also be defined by your financial goals. This where ‘Goal-based investing” steps in.
Investor-centric approach
Goals-based investing (GBI) is a relatively new approach to wealth management that emphasizes on investing with the objective of attaining specific life goals. It supplies direction to an investment, by looking at your existing assets, expense patterns, risk profile, asset allocation and the various short, long and medium-term goals. To this end, it structures a road-map for each of these goals in a fairly predictable manner. The entire process comprises of two parts- planning and investing.
Getting started: The three-step path to planning
As per Mr. Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance, goal based planning involves three steps. First, it is necessary to identify not just your goals but also the time frame within which you intend to achieve these goals. GBI is usually set in three time frames– short-term, mid-term and long-term. Short-term planning covers immediate goals and spans over a time-frame of a few months to one year. This may include buying a car or going for a vacation. Mid-term planning involves a time frame from one to five years. This may include goals such as buying a house or starting a business. Long-term planning involves goals that are more than five years away. This may include goals such as retirement or child education.
Next, you should ascertain the amount of corpus that would be required to effectuate your plans. To this end, you must determine the monetary value of attaining such goals today and then add a reasonable amount of inflation for the time period that you wish to achieve them within. This would give you a fair idea about the corpus required to accomplish your goals. Finally, you must now be certain about the amount that you can save or invest for your goals, based on your risk appetite and the expected returns from the investment. You may then opt for regular investment products or lump-sum investment or a combination of both.
Putting your eggs in the right baskets
The planning process in GBI is followed with an efficient and well-researched investment in order to help you achieve your #LifeGoals. Ideally, the long term goals should eye maximizing results, while those shorter than 5 years should focus on preserving capital. For instance, equity market usually beats inflation over a long-term period and investing in equity to achieve short-term goals can prove fatal if market turns unfavorable. Further, different goals also call for different risk profiles. For example, an emergency fund should hardly take on any risk and, in turn, may provide very little return. A retirement fund that is not needed for another 30 or 40 years, on the other hand, can tolerate significantly more risk. GBI, therefore, calls for tailor-made investment allocations suitable to your goals.
With such insights, it is imperative that you keep your priorities in check. In a recent meet, the CEO of Bajaj Allianz Life Insurance Corporation, Mr. Tarun Chugh spoke about the cultural shift through which the #LifeGoals for Indians are evolving. From the traditional Indian dream of owning a house, securing your child’s future and enjoying a peaceful retirement, the #LifeGoals are now moving to vacationing to holidays, fashion, tech and events. It is this shift that has inspired their new product that promises to help you #InvestBefikar and achieve your #LifeGoals.
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