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Goal-Based Investing Is Best Road to Financial Security

Jun 29, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

Goal-based investing means you save and build a corpus to fulfill a specific goal in life. The goal can be funding your child’s education, buying a house or saving extra for retirement. It is this goal centric wealth management that helps you to manage your investment as wisely as possible.

Goal-based investment paves the way for a secured future by maximizing the ways of how to manage your money and prepare yourself to spend more in future than you do today. Majority of modern investors go with a single-focused mindset. They value returns more than anything else.

Contrary to popular perception, this one way focus on returns can hamper your long-term wealth gains. Goal-based investing or focused investing, on the other hand, caters to two things- first, it matches your unique needs and second, it can be customized to meet your risk appetite and time horizon. 

How to get your goal-based investment strategy right?

Structure is the keyword here as the right returns depend on the right planning. Divide your goals into three buckets:

  • Short (few months to one year)
  • Medium (one to five years)
  • Long-term (above five years)

Let’s explore five key reasons that make Goal-based investing a better approach than random investing:

#1 Avoid under or over saving: When setting goals, you are forced to think hard about the various life aspects you care about and how much they will cost in future. This helps to put your expectations in the right perspective and in result align your savings with future requirements. It prevents you from underestimating the amount of money required for future or misleading you from your savings ability. 

#2 Get more gains: Based on how accurate your goals are and how much in advance you start saving to meet those, you can achieve high returns by saving less, and leveraging the power of compounding. If you want to earn more benefits from your financial investments, a Unit Linked Insurance Plan will be your best option. Aegon Life’s ULIP iMaximize Plan comes with ‘Triple Benefits’. Here, along with a higher sum assured, you also get additional savings and income benefit. Moreover, it ensures your child gets all the financial security after you.

#3 For overall portfolio growth: Different goals will have varying risk appetite. For instance, short-term goals such as an overseas vacation or buying a car fall into less volatile asset classes. Long-term goals such as planning for retirement or children’s wedding come under more aggressive asset classes.

Goal-based investing helps you to separate ‘risk profile’ into different goal buckets rather than view it at an individual level, creating a healthy mix of investment options in your portfolio. You can select the right investment products depending on the risk profile and time horizon of each goal. 

For instance, investing in equity funds for short-term goals is never a good idea as market returns can be unpredictable.

#4 Keep debts at bay: This is the gold standard of financial planning – avoiding debt at all costs and goal-based investment planning helps you to do that perfectly. Debts can be a major barrier for investors, if an investor is engaged in debt, the amount required to repay it will affect his or her savings.

Whereas savings do play a vital role in financial stability, the amount of money you save, helps you sustain your financial standings for a specific period, making you less vulnerable to debts.

#5 Inculcate positive savings behaviour: Setting goals promotes ‘partitioning’ – a conscious accounting technique that means one makes decisions based on the status and priority of each goal, not as an aggregate. Creating accounts for different goals means you are saving individually for each of those without relying on one’s corpus to fulfil the other’s needs.

Besides, it is always more motivating to know “Hey, you’ve saved up Rs. 5 Lakhs for your retirement in the Bahamas” than just knowing “Your savings have increased by Rs. 5 Lakhs”. Goals add a measurable aspect to financial planning, and that goes a long way in promoting positive investment practices.

To conclude

Broadly, for goals that are more than five years ahead, your goal should be to maximize returns, whereas, for short and medium-term goals, it is better to preserve capital, minimize risks, and focus on post-tax returns.

Whether you invest monthly or one-time, always remember the golden rule – your goals should decide the investment product and amount, and not the other way around.    


You can get tax breaks if you have a life insurance policy as well, provided you have add-ons like medical insurance and critical illness riders.

Advt. no.: IA/Jun 2018/4106


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