Goal Based Investing

The Importance of Financial Goals

Since you are here, congratulations….You are already on the right track with your investments! Investing with clearly defined financial goals will put you ahead of 99% of the investing population in terms of your outlook and attitude to investing.

Investing is easy – wealth creation is not! Every year, thousands of people start investing every year, but very few of them go on to generate long term returns. The difference is – financial goals.

Most investors chase returns. However, that’s a race you can never win because returns are not controllable! The only thing that is controllable is “how” you invest – that is, your investing discipline, your resilience during volatile markets, and how you are able to control greed and fear driven decisions.

When you invest with clearly defined goals such as retirement, child’s education or marriage or a loan prepayment, you automatically become a much better investor because you stop getting swayed by market movements. Additionally, with a strong purpose guiding you, you become more disciplined with your savings as well. That’s the magic of investing with purpose!

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Your Investing Experts

Why simply setting goals is not enough!

The answer lies in people + technology

Simply setting goals using a Do-it-Yourself app isn’t enough… meeting long term goals requires investing resilience. Many goal based plans end up biting the dust at the first sign of market volatility!

This is how our unique goal planning platform – DiA (Dreams into Action) is different. It combined fantastic technology with the support of an investment expert, to help you build investing resilience and play the long innings! 


Top 5 Reasons why you should be a Goal Based Investor

Most of us save money in some way or the other, very few of us actually align them to our future goals. If you’re an ad-hoc saver, here are five good reasons to become a goal based investor instead.

Investment Discipline

When you’ve got a well-defined set of goals in front of you, you’re a lot more likely to save for them in a disciplined way. While the normal approach to saving is to “save what’s left after spending”, having a goal plan in place flips this approach to the healthier act of “spending what’s left after saving”. Instead of randomly investing lump sums of money as and when they become available to you, a goal plan puts your monthly savings on auto-pilot mode, just like a “good EMI”!

Big Picture Thinking

Goal based investors automatically become long term investors. They are less impacted by the market volatility and more patient when it comes to riding out cycles with cool composure. Additionally, linking savings to time-bound goals implicitly forces you to link your asset allocation to your time horizon. What this means is that savings that are being channelized towards a car planning goal that is 12 months away will flow into a more non-volatile and liquid asset class than say, investments for your retirement goal that’s three decades away.

Lower Financial Stress

Not knowing whether you’re on track to meet your financial goals – such as your child’s education, or a comfortable retirement is the number one reason for financial stress, according to research. Though you may actually be saving an adequate amount each month, the lack of awareness about your future goals and their achievement could leave you feeling stressed and feeling out of control of your family’s financial future. Having a goal plan in place will take away much of the unease, and help you build a sense of comfort and security about your financial future.

Beat Inflation

Ad hoc investors tend to turn a blind eye to inflation. Typically, ad hoc investments tend to flow into traditional asset classes such as fixed deposits and life insurance, which do nothing to beat inflation. By forcing you to consider inflation while mapping out important financial objectives, goal planning helps inflation proof your savings. A concrete, well defined annual step up plan, and the selection of more aggressive asset classes such as equity mutual fund SIP’s, are the two more common outcomes of goal planning. Goal based investing forces you to re-evaluate your investing beliefs.

Goal Planning Tips for Smart Investors

Money is just a means to an end, isn’t it? And that is precisely why goal-based investing has proven to be a lot more effective than chasing returns. Keeping your eyes on the prize not only increases your chances of wealth creation but also ensures peace of mind. That said, here are five things to keep in mind as you undertake your goal planning journey.

Assign Risk Profiles to Goals, not to yourself

We often become fixated upon our individual attitude to risk, and so end up committing even long-term savings (for instance, retirement savings that may have a 25-30-year accumulation period) to low risk, low return assets such as insurance or PPF. This can make a massive difference to your final corpus accumulation over the years. When it comes to goal planning, you should choose your investment base on your time horizon and nothing else.

Don’t combine insurance and investments

Always avoid packaged products like child education linked insurance plans that claim to provide both insurance and investment returns. Packaged products are expensive and don’t solve any one requirement fully. It’s better to stick with regular investments that only aim to solve a single need.

Get Adequate Health Insurance

Wondering how health insurance can impact your goals? It can… Not having adequate medical coverage in place can result in ‘money drain’ situations if you’re unlucky, and this may severely hurt your long-term goals. A lot of investors discovered this during the pandemic when they had to unfortunately redeem their goal-based funds for medical emergencies!

Track your progress!

There’s a reason why Karl Pearson said “what is measured, improves”. It’s one thing to have a basic understanding of your goals through DIY apps or websites, but it’s quite another thing to use tech to map your investments, track and measure your progress towards your goals in real time. Doing this can dramatically improve your chances of achieving your goals, by adding to your commitment and alignment – and even adding a ‘fun’ element of gamification to your goal based investments!

Resist Temptation to redeem your goal-based investments

The No. 1 enemy of your Financial Goals is a syndrome called ‘hyperbolic discounting’ – a mental trap that makes nearer term goals seem exponentially more lucrative. Hyperbolic discounting is why upgrading your car tomorrow may seem more important than saving for your child’s education goal which is 10 years away Remember, even small redemptions, especially early on in your savings cycle, can have a hige impact on your final corpus. You need to beat the hyperbolic discounting syndrome to stay ahead in the game! The support of an investing expert can be very valuable in this regard.

How to achieve your goals with Mutual Fund SIP’s

Over the years, Mutual Fund SIP’s (Systematic Investment Plans) have evolved as a top choice for planning for financial goals such as a child’s education, retirement, a home purchase, an emergency fund or even lifestyle goals such as a vacation or a car purchase. And why not? With the vast array of asset allocation choices available from the universe of Mutual Funds, one can tailor make their portfolio of goal based savings to match their time horizons and risk appetite. Additionally, equity oriented funds have the potential to outperform other traditional savings tools such as life insurance or recurring deposits by miles. Here are some points to keep in mind when it comes to goal planning using SIP’s.

Start by Mapping your Goals

The first step is to map out your goals clearly. As Henry Kissinger said: "If you don't know where you are going, every road will get you nowhere." Work with an expert to visualize and identify your upcoming life milestones, and assign them a ‘today’s terms’ value. Having done this, apply a reasonable inflation rate, and come up with a future value for each one of these goals. For instance, you may have a nine-year-old son. Assuming you’d want to save todays’ equivalent of Rs. 10 lakhs for his graduate studies, your saving’s target, assuming 7% inflation, should be closer to 18 lakhs by the time the goal year arrives. Do this for each of your goals.

Prioritize your Objectives

When it comes to planning for your future goals, you must instead prioritize them per your currently available surplus. For instance, let’s say that the total saving required for achieving all your goals is Rs. 25,000 per month, but your monthly cash surplus if Rs. 15,000. You need to decide which goals you’re going to start off with, and which ones you’re going to put off for a later date. As a thumb rule, prioritize the goals for which loans aren’t an option, and which require a small outgo over an extended time horizon (such as your retirement). By doing this, you’ll be reaping the maximum benefit from the compounding effect. When your monthly surplus does increase (for instance, through the cessation of an EMI or an increment), start off with a SIP for the goal that’s next in the pecking order. Your investing expert can also help you with a structured step up plan to meet high ticket goals.

Align your Time Horizon to the Fund’s Risk

It’s critical to align your choice of funds to the time horizon of your goals, regardless of your risk appetite. You may be a conservative investor at heart, but that doesn’t mean you should put away your retirement money into a debt fund that’ll earn you 8-8.5% per annum at best. Conversely, even a high risk taking investor shouldn’t start a SIP in an aggressive, equity oriented fund for a goal that’s just 2-3 years away, as that would be highly speculative. Longer term goals may automatically require smaller monthly commitments too; for instance, a 1 Crore saving amount in 30 years will likely require a monthly saving of less than Rs. 3,000. Use this as an excuse to build up courage to invest more aggressively. As a thumb rule, any goal that’s more than 10 years away should ideally have moneys flowing purely into aggressive, equity oriented funds. Don’t worry, the magic of rupee cost averaging will take care of stock market volatiloty, smoothing out your returns eventually.

Be resilient… even in the face of volatility

Liquidity and flexibility are often mentioned as two primary benefits of mutual funds. However, they can just as easily work against you and end up becoming the No. 1 enemy of your goals. SIP’s work best when they can run freely through the ups and downs of market cycles. When markets fall, you end up buying more units, and when markets rise, you end up buying less. Trying to time the market with your SIP’s, or repeatedly redeeming the saved amount midway is like taking two steps forward and one step back. We tend to underestimate the impact of making interim withdrawals on our goal based savings, without fully understanding the effect of compounding.

FAQ – Financial Goals

What are some examples of financial goals?

Financial Goals are highly personalized and vary from person to person. However, some common goals that most people have are their children’s education and marriage, their own retirement and buying a home

What is a smart financial goal?

A smart goal is specific, measurable, attainable, time bound and relevant. Studies have shown that such “SMART” goals are much more high impact. For example, “I want to retire by 50” is a goal, but it isn’t smart. I want to retire by 50, with today’s equivalent of Rs. 1.5 Lakhs per month to spend for a retirement duration of 30 years” is a SMART goal, though! An investment expert can help you set smart goals.

How do I set my financial goals?

Setting your financial goals requires a customized solution. If you set too many goals at once, you will not end up meeting any of them! Working with an investing expert, prioritizing your goals, visualizing scenarios and choosing the right product based on goal time horizon are some of the important steps in setting financial goals.

How do you maintain financial goals?

Maintaining financial goals requires regular reviews with an investing expert, in which any changes in your life scenario are considered and your goals are adjusted according to them. In addition, it helps to have great technology to visualize, track and monitor your progress, as well as measure the impact of your investing decisions on your financial goals!