If you have goals, you should be a goals-based investor

Investing anything time, effort, or money sacrifices short-term rewards for a long-term payoff.

Whether you are HNI or not, be it any type of investment, sometimes investors lose sight as to why they’re investing.

Goals-based investing offers a useful structure to map out concrete investment goals, prioritize them, build portfolios to meet them, measure progress against them, and make adjustments (if necessary) to stay on track.

The benefits of setting goals extend to investing by improving investor behavior and increase the likelihood of financial success.

What is goals-based investing?

Goals-based investing is a framework to translate financial goals into

forecast future expenditures and
allocate money to separate portfolios

designed to meet those specific goals.

An investment without a goal is like a traveler without a destination.

SMART framework help establish clear goals.

Prioritize goals based on necessity and time horizon:

High-priority goals are those that are indispensable. The impact of not meeting them is high. Low priority goals are aspirational; the impact of missing them is low. A low priority goal may be saving for a dream vacation in 15-20 years. Rigorous prioritization helps ensure that you’re set up well to meet your most important goals. Sometimes, you cannot be specific in terms of time horizon; instead you can specify the range.

Build investment portfolios to achieve financial goals:

Conservative investment portfolios are likely best for high-priority goals with short time horizons. This is because the impact of not meeting these goals is high and there’s less opportunity to recover from poor market performance over short-term horizons.

Measure progress/Make adjustments.

Undoubtedly financial situations change. The portfolio plan should be reevaluated and modified when necessary. An advantage of goals-based investing over traditional holistic investing is the ability to measure progress toward individual investment goals.

Life events such as getting married, changing jobs, or having kids can serve as catalysts to measure progress toward financial goals, update investment strategies to better position yourself to meet your goals, or to reprioritize them.

Rolling With the Punches:

Breaking up future expenditures into concrete goals, prioritizing them, creating a plan, and monitoring progress could increase investor success by promoting good behavior.

Conclusion:

When using goals-based investing, keep the following three things top of mind:

Be as detailed as possible when setting and prioritizing financial goals: A better-defined target and honest prioritization sets you up better to accomplish your financial goals.

Use appropriate portfolios to fund goals: Conservative portfolios are a better bet for high-priority, short-term goals while aggressive portfolios make more sense for low-priority, long-term goals.

Don’t set it and forget it: Periodically measure progress toward financial goals and adjust prioritization if necessary.

---

Thank you very much for your time!

You may contact me in case you need to ask or tell me something.

I am waiting to hear from you.

With respect,
Aaditya Chhajed

E: chhajedaaditya@gmail.com
M: +91-9404055222.

You can connect me on Instagram at @chhajedaaditya

Aaditya is the founder of Aaditya Chhajed Financial Advisory Services, a Wealth Management Firm in Pune.

He loves helping family, friends, and, clients make better financial decisions. He believes learning is perpetual.

He is a commerce postgraduate and Chartered Accountant. He has also cleared all levels of CFA(US) in the first attempt.

Disclaimer:
Investors should seek the advice of their financial advisor prior to making any investment decision based on this report or for any necessary explanation of its contents. Future estimates mentioned herein are personal opinions and views of the author. This post is not a recommendation to buy or hold or sell securities. Investments are subject to market risks. Please read all investment-related documents carefully.

Comments

Should you Invest in Real Estate?

Success exists in every field of investing. Right from real estate to equities. In India and across the globe. There are two categories of investors (both in equities and real estate): who have made a lot of money who are stuck with a lot of money One thing which is common in everyone who has made a lot of money is that they stick to their circle of competence (i.e. what you really know). Warren Buffet's take on the circle of competence: Every year Warren Buffet writes a letter to the shareholders of Berkshire Hathaway. In 1996, in his letter, he wrote: Intelligent investing is not complex, though that is far from saying that it is easy. What an investor need is the ability to correctly evaluate selected businesses. Note that word "selected": You don't have to be an expert on every company or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundarie...

7 ways to buy Gold - Which one suits you?

There are 7 ways to invest in gold. Which one suits you? Have a look. Please read this post in horizontal screen mode. To view the below chart in 1 page PDF format click here Parameters Sovereign Gold Bond Physical Gold PayTM Gold/ HDFC SafeGold Gold ETF Gold Mutual Fund Multi-Asset Mutual Fund Investment Limit Min 1 gram; Max 4 kg in a year for an individual No limit No limit Min 1 gram Min INR 1000 Min INR 1000 Asset Gold Gold Gold Gold Gold Equity + Debt + Gold Returns Higher due to interest As per gold price As per gold price As per gold price As per gold price As per equity, debt and gold value Interest on investment 2.5% per annum Nil Nil Nil Nil Nil GST on Purchase Nil 3% applicable 3% applicable Nil Nil Nil Tax Collected at Source (TCS) on Purchase Nil 1% over 2 lakh 1% over 2 lakh Nil Nil Nil Income tax Long Term Capital Gain exempt; interest taxable Long Term Capital Gain after 3 years Long Term Capital Gain after 3 years Long Term Capital Gai...

Fortunes are made coming out of recessions...and you won't have to nail the bottom.

Fortunes are made coming out of recessions. Fortunes are made coming out of recessions. Fortunes are made coming out of recessions. Fortunes are made coming out of recessions. Fortunes are made coming out of recessions. ...and you won't have to nail the bottom. This post might actually make you a fortune. Remember how everyone in 2010-2019 wished they had invested in the market during the global financial crisis in 2008? Well, for those who missed it, you are getting a second chance now. Fortunes are made in bear markets for those willing and able to look past the pandemic. Business disruptions: Many businesses are getting disrupted in this crisis. It's no coincidence that half of the Fortune 500 and fastest-growing companies in the world were started during a recession or bear market. I feel this time is no different; strong companies will come out stronger, far bigger, better, and creating much more wealth than in the past. Lessons from history: The historical lesson of ever...

Alternative to Fixed Deposits; where you don’t have to pay tax every year💰

Avenues for investments include: Public Equity (Listed Companies) Private Equity (Startups, Own business) Equity and Debt Mutual Funds Bonds Fixed Deposits Government Schemes, etc. While dealing with my own clients', I see a lot of people who have had very bad experiences in the past. Such experiences include the erosion of capital due to greed or less prudent decisions in public equity markets. These people never return to equities for a lifetime and stick to fixed-income investments. Retirees primarily invest in fixed income securities, as risk appetite comes down as age increases. One of the avenues for Indians to save and park money has been fixed deposits. Debt funds are a good alternative to fixed deposits. Where do Debt Mutual Funds Invest? Features of Debt Funds and Fixed Deposits? The best part of debt funds: In case of fixed deposits, one has to pay tax on the interest every year. This is not the case with debt funds. Unless and until you sell the debt funds investments,...

Lessons: The Most Important Thing by Howard Marks - Part 1

Global market indices are down almost in the range of 20-25% from the peak, we must believe this too shall pass and good times for (select) equities are not too far. Amidst this extreme volatility in my portfolio and client meetings, I managed to read a book by Howard Marks; The Most Important Thing, Uncommon Sense for the Thoughtful Investor- Uncommon Sense for the Thoughtful Investor . He is an extremely successful investor and a founder of Oaktree Capital Management. I have divided the lessons from this book in four parts. This post is part 1. I will post the remaining lessons very soon! 1. What is Second-level thinking? First-level thinking says, "It's a good company; let's buy the stock." Second-level thinking says, "It's a good company, but everyone thinks it's a great company, and it's not. So, the stock is overrated and overpriced; let's sell." There are numerous examples like this to understand what is exactly...

Ten Timeless Commandments of Equity Investing

Are you prepared? The need of an emergency fund

How many of you would have thought of the lockdown due to COVID 19? The importance of emergency funds has never been apparent. Recently I read, 65% of home buyers expected to default on their installments . Well, events like COVID 19 are extremely tail events. Nassim Nicolas Taleb in his book "The Black Swan: The Impact of Highly Improbable" defines a Black Swan is a highly improbable event with three principal characteristics: It is unpredictable It carries a massive impact We explain it in such a way making it less random Why we do not acknowledge the phenomenon of black swans until they occur? By nature, humans are not hardwired to learn specifics when they should be focused on generalities. We focus on things we already know and time and time again fail to take into account what we don't know. Just imagine - what if lockdown is extended to a total period of three months? There arises the need for an emergency fund. In this blog - let's ...

Wealth is What You Don’t See - Morgan Housel

I recently read the book- The Psychology of Money by Morgan Housel, Timeless Lessons on Wealth, Greed, and Happiness ; the most intriguing investing book I have ever read. Top 20 learnings from this book as follows: Financial success is not hard science. It’s a soft skill, where how you behave is more important than what you know. If you are short of time jump directly to points 19 and 20. 1. No One’s Crazy Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works. Spreadsheets can model the historic frequency of big stock market declines. But they can’t model the feeling of coming home, looking at your kids, and wondering if you’ve made a mistake that will impact their lives. The economists wrote: “Our findings suggest that individual investors’ willingness to bear risk depends on personal history.” The New York Times wrote in 1955 about the growing desire, but continued inability, to retire: “...

21st Century Investor

Firstly, I pray for you and your family's safety. In 20th Century India, the primary investments avenue included: Own business Real Estate Gold Fixed Deposit Money kept under the mattress In this blog post, let's have a look at how 21st Century's financially literates look at investments: Own businesses: Even if a substantial amount of net-worth is invested in their own businesses, they understand its risk (e.g. key-man risk) and the need for diversification. Real Estate: Unless their full-time business is real estate, they understand it is only for self-use. Gold: Even they believe gold is not an investment, but for self-consumption (jewelry). Fixed Deposits: Investing in fixed deposits is like home quarantine of your young and bright children full of potential for years and years. Fixed income investments are only for short term goals. Mostly retirees invest some part of net worth in fixed income due to lesser risk appetite and cash flow requirements....

Now's the time to...

These are exciting times. Indian Equity markets benchmark Sensex had come off from 42000 to 26000, now sharply risen to 37000. The buzz is palpable, and making a quick buck seems rather easy. We present a three-point strategy on what investors must do now. Cleanse your portfolio: Remember that sure-fire stock tip your friend told you about. The hidden gem which was supposed to be the next big story, but never quite took off as expected. Instead, it ended up as one of your worst investments. Or that trendy thematic mutual fund which your broker promised would be the ticket to your financial nirvana . But sadly, the fund failed to deliver on the return front and your broker failed to return your calls when quizzed about its performance. Now is the time to cleanse your portfolio of such investments. Rising markets provide the perfect opportunity to make up for incorrect investment decisions, and that too at a profit. It is important that your investment portfolio is only made of aven...

Aaditya Chhajed, CA, CFA

Search This Blog