Invest with Purpose: The Benefits of Goal-Based Investing | INVESTEDMOM
Investing should feel manageable, but those new to the financial world can easily find themselves overwhelmed. New investors often pool their money into random market-linked financial instruments without specific goals or time frames. When you approach investment with this mindset, it can easily lead to unpredictable outcomes that may not align with your investment objectives.
Goal-based investing is an emerging strategy highlighting the importance of investing using tools tailored to your financial goals. This strategy helps investors minimize their risk of failing to meet specific goals or achieve objectives.
Let's explore the benefits of goal-based investing, planning to invest with goals, and where to begin your goal-based investing journey.
The Benefits of Goal-Based Investment
Investing is a great way to build your wealth and secure the financial status of your future. Goal-based investing brings numerous benefits to investors looking to improve their wealth management. Some of these benefits include helping you stay focused, choose financial instruments, make informed decisions, and reduce your risk of making impulsive decisions based on the market or your emotions. Let's explore the benefits of goal-based investing and what makes it a thoughtful, deliberate investment approach.
Choose Investment Products
Investors can better align their investment strategies when they identify their long-term and short-term goals. A primary benefit to this approach is that it helps investors decide between assets based on their investment horizon and goals.
For example, an investor with a shorter-term goal, such as saving up enough money for a house down payment, may find that debt funds or fixed deposits are suitable as they come with lower risks and returns within a shorter specified period. In opposition, a long-term goal like retirement could benefit from equity funds, as they have higher expected returns over extended periods.
Estimate Funds Needed
This type of investment management will help investors estimate the funds they need for their current and future goals. Having a clear idea of your goals and when you want to achieve them will give you a better idea of how much money you will need to invest. However, it is crucial to consider both inflations in the market and investment deprecation when estimating your financial goals.
Diversify Investment Portfolio
Investors can adopt asset allocation strategies to invest in asset classes like equity, gold, and debt. Diversifying your investment portfolios will reduce your risk profile and optimize your chance of higher returns.
Diversifying your portfolio management allows you to increase or decrease asset allocation to specific asset classes depending on the market environment and how it relates to your financial goals.
Gain Investment Control
Most people stop investing due to distractions or need more clear goals set in place. When you set clear goals with goal-based investing, you are more likely to stay focused and on track with your investments. Investors will be able to adjust their investment objectives and investment strategies as they make progress toward their financial goals.
Planning your Investment Strategy
This essential investment strategy is crucial for you to reach financial stability and security. Investors should set clear financial goals and consider numerous aspects if they want to devise a successful investment plan. It is not enough to choose a few stocks or mutual funds and hope for the best outcome. To succeed, you need a well-thought-out plan to build your portfolio and increase your financial success.
Time-frame and Money
Different goals will take different amounts of time to achieve, and it is vital to know how much money will be needed to reach each goal.
A long-term goal, like saving up for retirement, will require more money and a longer time than a shorter-term goal, like saving for your child's college tuition. An example of a medium-term plan could be saving up for your wedding or paying off your student debt. Each of these unique goals will require its own time frame and set of money for investment.
Present Cost vs. Future Costs
As you invest, consider inflation in the market and whether or not the future value of your current assets will depreciate with time. Fluctuations in the market can play a role in the estimated costs of achieving various goals.
By considering current and future costs, you will have a realistic idea of how much money to invest and for approximately how long.
Evaluate expenses
Consider every aspect of investing, including current income, compared to costs. In doing so, you will determine if there is an investable surplus. Some goals will take more money and time than others, so knowing if your investment plan is realistic and achievable for your current financial situation is essential.
If you are still determining whether or not you have an investible surplus, you should talk to a financial advisor to gain insight into your financial situation. A certified financial planner can help you achieve your financial goals and understand your wealth management.
Risk Appetite
Your risk tolerance is crucial when planning to invest with goals. You may have less risk tolerance if you have more short-term goals, such as saving for a car or vacation or reducing debt. Long-term goals leave more room for risk, which gives you time to recover from fluctuations in the market. Long-term goals can include saving for your children's education or retirement.
The Importance of Starting Early
When you begin investing earlier, your chances of success are more likely to be higher. Starting earlier gives you more time to reach your financial goals and endure market fluctuations. Investing earlier in life can result in higher returns for your pocket and lower risk.
It's crucial to remember that now is always the right time to begin investing.
Where to Begin Goal-based Investing
Now that we have established the importance of a financial plan, it is time to put your money to work. With so many investment services offered, many feel it is challenging to start investing and begin asset allocation. Investors should evaluate their expected returns and risk tolerance to help them find an investment plan that aligns with their financial goals.
Recurring Deposits
Recurring deposits involve fixed monthly deposits made in a bank at a fixed interest rate. This method is suitable for a short-term financial goal, as it offers a lower risk, and you know the interest rate in advance. Recurring deposits can help you get into the habit of regular investing.
Debt Mutual Funds
This type of mutual fund involves investing in fixed-income instruments that offer a low risk. This investment method invests in interest-paying securities where fluctuations can happen but is typically longer than recurring deposits. These are great ways to receive stable returns while minimizing market risk exposure.
Liquid Mutual Funds
These mutual funds invest in high-quality financial income instruments that are fixed and matured in 91 days or less. The fact that they develop quickly makes them an excellent choice for shorter-term goals with low risk and returns that are usually higher than you would get from a typical savings account. You can withdraw your investments anytime, making it an excellent, flexible option.
Equity Mutual Funds
Equity funds involve investing funds in shares of various companies or businesses. Equity mutual funds are a suitable option for medium to long-term goals, as they provide a diversified portfolio of stocks and will minimize individual company risk.
Staying on Track with Goal-Based Investing
One of the biggest challenges in goal-based investing is staying on track with your financial goals and investments. Investing without goals can make it easy to lose sight of what you are working towards. By giving a purpose for your assets and setting clear goals, you can better resist the temptation to make impulsive decisions based on market fluctuations or other short-term factors.
Regularly Review and Update Goals
One way to stay on top of your financial goals is to regularly review and update them by evaluating where you are versus where you want to be and making the adjustments necessary to your financial plan. One example of this is if your financial goals change, you may need to reconsider your asset allocation or investment horizon. By regularly reviewing these goals, you will be able to ensure you are on top of your current needs and financial objectives.
Avoid Emotional Decisions
It can be easy to get swept away by the market hype and panic, especially as you see others making significant gains or losses. When you decide impulsively with your emotions, it can lead to poor decision-making and even missed opportunities. You refrain from making regrettable decisions when you stick to a clear investment plan, even when the market is unpredictable.
Automate your Investments
By automating your investments, you won't have to rely on your own willpower to make regular contributions. Automated investments involve setting up automatic monthly or quarterly transfers from your checking account to your investment account. In doing so, you will consistently put funds towards your financial goals. This will help reduce the time and effort you put toward creating a balanced portfolio.
Work with a Financial Advisor
You can gain incredible benefits from working with a financial advisor for your goal-based investments. A certified financial planner can help by providing expertise on investment strategies, risk tolerance, and other economic issues. An advisor can also help you stay accountable and guide you in making informed financial decisions.
A financial advisor can provide legal or accounting advice tailored to your unique situation and goals as they take the time to understand your financial situation. Advisors are experts in navigating the complex world of investing.
The Importance of Financial Planning: Don't Invest Your Money Just Anywhere
Goal-based investment management is an effective way to ensure your investments align with your goals. This process involves identifying your financial objectives, estimating the funds needed to achieve them, and choosing the appropriate investment instruments based on your investment horizon and risk appetite. Goal-based investments will increase your chances of attaining your goals and securing your future.
As you invest, you should assess your progress and make the adjustments needed to your portfolio. Doing so will help you rebalance investments, avoid emotional decision-making, and stick to your financial plan.
Here at Invested Mom, we know the importance of financial planning when achieving long-term financial success. We are excited to launch our new course, which will provide expert guidance on goal-based investing and what it can mean for your financial situation.
By enrolling in our course, you will gain valuable insight and learn numerous strategies to help you achieve your financial goals. Sign up for our class today to take the first steps in securing your financial future!
Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!