Five tips to help match your investments and financial goals

Published: November 27, 2018 1:49 AM

Divide your goals into three ‘savings buckets’: Short-term goals, mid-term goals and long-term goals

Investments need to be matched with your goals.

By Harshad Chetanwala

If you have invested money towards your financial goals, be it long-term mid-term or short-term, it is imperative that you stay the course and keep your long-term plan in mind irrespective of market swings. Moreover, if you have matched your investments with your financial goals, you would want to see the end result by the end of your investment period. Here are five key factors that will help you match your investments to your financial goal.

Jot down your financial goals
It is important to prioritise goals that are specific and measurable. This helps you create a foundation to decide what you plan to do with your money. Get a pen and paper and write down what is important to you and use your list to help you determine your financial goals for your money. You should do this today if you haven’t done it already.

Determine your time horizon
Ideally you should divide your goals into three ‘savings buckets’: Short-term goals (accomplishable within a year), mid-term goals (accomplishable within one to five years), and long-term goals (accomplishable in five-plus years).

Short-term goals usually span one to two years. You can easily invest your money in a savings account to accumulate a small amount of interest—hopefully not erased by inflation—thereby having enough money for that new mobile or laptop that you wanted to buy.

Mid-term goals are more or less like short-term goals with the added condition that you’d need the discipline to stay put for a little longer, between, say, two to five years. For eg., the desire to purchase a new car would fall in this category.

Investments in equity mutual funds usually fall into the category of long-term goals. Parking your money in such investments has the possibility to generate tremendous benefits after five-plus years. With equity funds it is important to have an idea of where you want to be several years down the line. If your financial goals are to build a retirement corpus to live a comfortable retirement life or sending your children for higher education abroad, then equity based investments are advisable if such goals are far away.

Decide your asset allocation, risk tolerance
Your risk tolerance is your level of comfort with the ups and downs of investing. Make no mistake—markets will fall and rise again at some point. In order to make the best investment for you as an individual, you will want to find assets that match your risk tolerance. Identify the assets (such as equity, debt or gold) that would make up your portfolio according to your goals, risk appetite and investment horizon. Allocate funds in more than one asset class.

Pick investments to match goals
Investments need to be matched with your goals. For instance, if you plan to invest in long term-goals such as your child’s education or buying a house, equity oriented mutual funds should be the preferred choice of investment, as they have an ability to provide good returns in the long-run.

Evaluate portfolio time to time
Just as you go for regular health check-ups, it is necessary to regularly review your portfolio consisting of your goals and investments. Portfolios need to be reviewed periodically to ensure you are investing in the right instruments. Investors need to take into account factors like inflation, changes in the standards of living, addition of financial dependents which may lead you to increase, amend or remove certain goals. When new goals are considered, investors need to start investing more depending upon one’s age and risk appetite.

-The writer is head, Customer Delight, Quantum Mutual Fund

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