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Understanding goal-based investing. | #PromotingFinancialLiteracy – Guest Post

March 23, 2021 10:11 am | by Ashish Kashyap | Posted in Guest Post

Understanding goal-based investing. Blog Featured Image Sarvika Technologies

Understanding goal-based investing. | #PromotingFinancialLiteracy – Guest Post

March 23, 2021 10:11 am | by Ashish Kashyap | Posted in Guest Post

Quite a few times it happens that you invest money but do not get adequate returns. This implies that working hard is not enough, you need to be smart as well. The same applies to investing. When you invest but do not get returns, the reason is inadequate planning. 

The lack of planning is due to lack of knowledge. Investors start investing based on other people’s advice without evaluating their financial goals and are unable to achieve financial freedom. 

Is there a solution? Yes, and it is called SMART Goals.

“SMART Goals” is the best way to fulfill your financial desires. These can be understood as follows.

  • Specific: Your goals should be clear and specific. For example, saying I want to retire early is vague. You should instead set defined goals like I want to retire at the age of 50.
  • Measurable: It is important to have measurable goals so that you can track your progress and stay motivated. I want to have a huge corpus at retirement is an unclear statement. I want to accumulate INR 2 crores by the age of 50 is measurable.
  • Attainable: Setting realistic and attainable goals is necessary. People set financial goals that are impossible to achieve, and end up losing the motivation and patience that is necessary while investing. For example, thinking that I want to double my money in the next year is an unrealistic goal.
  • Relevant: Your goals should be relevant and worthwhile. Ensure that your goal matters to you and that it also aligns with other relevant goals.
  • Timely: Your goal must be time-bound with a start and finish date. It is important because if the goal is not time-constrained, there will be no sense of urgency and motivation to achieve the goal.

Traditional Approach vs. Modern Approach

Now that you are familiar with the SMART goals, let us understand traditional and modern goal-based investing.

Under the traditional approach, a few crucial life goals are identified and a portfolio of single or multiple investment options is built to meet the goals. Whereas the modern approach identifies goals and divides them into crucial and non-crucial categories like children’s education, retirement and vacation, car purchase, respectively. Each goal is treated as an individual milestone with a unique investment plan based on the risk tolerance, time frame, significance, etc.

Risk management is common for all goals in the traditional method; separate for each goal in the modern approach based on their relevance to the investor. The performance evaluation of the portfolio under traditional investing is done together for all goals. Each investment is evaluated separately based on the expected returns under the modern approach.

Conclusion

Half of your financial planning is complete if you have the SMART goals. These goals set you up for financial freedom. The SMART method will motivate you, give you a sense of direction, and help you organize and reach your goals. Invest SMART, enjoy better returns!

To know more about how to invest SMART and where to invest once you have the goals aligned, sign up on the INDmoney App and get the best advisory and platform to invest your money.

Editor’s Note: On 19th March 2021, Sarvika Technologies conducted a financial literacy session by partnering with INDmoney. It was part of the company’s Life at Sarvika initiative to help Sarvikans build essential financial planning and wealth management skills.

Written by Ashish Kashyap

Ashish Kashyap is the Founder & CEO of INDmoney, India’s leading online investment and wealth management platform. He completed his graduation in Economics (Hons.) from the Delhi University and has dual master's degrees from INSEAD, France and McGill University.

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