We all have dreams for ourselves and our loved ones but therein lies the dilemma! The impulse to live for today and enjoy our money now conflicts with the need to invest for a secure future. The answer lies in striking a successful balance between these apparently conflicting desires.
Age, as the saying goes, is just a number. However, the number does matter when investing to fulfil one’s future goals. As priorities of life change with the evolving phases of life, the requirement of money also changes.
Investing is a lifelong process
Investing is a lifelong process and though it is never too late to begin, it is always better to start early. While many people spend their time and energy on earning more, without learning the art of judicious saving and prudent investing they may not be able to create a secure future for themselves and their families. Disciplined saving is the key to a successful lifelong investment strategy as it will help build a corpus over a period of time. The next step is to prepare an investment plan which will take into account your future goals. This will depend on a number of factors such as your age, future earning years, time horizon and risk appetite. Therefore the focus must be on planning your goals, investing wisely and monitoring your investments regularly. How you plan depends a lot on your life stage and approach to financial management.
So how does one plan for goals? The first step is identify the goal for which you wish to invest and assess the number of years you have to reach it. It could be something short term like buying a car or going on a foreign holiday. Or a long-term goal like retirement or a child’s higher education. Once the goal is set, it is important to find how much the goal costs. Add a buffer of some amount for inflation and then you would know what the goal would cost you in the year you wish to achieve it. Goal based investing adds direction to each investment and creates a roadmap. With the wide range of products, asset classes and instruments available in the market today, there is an infinite range of options. Rather than putting all your eggs in one basket, allocate your investments among different asset classes, such as debt, equity and real estate. This is an important component of the investment process.
Goal-based investing ensures that the product selected is appropriate for your specific goals—it is a means to an end, not the end in itself. For example, investing in equity to fund short-term goals can be a disaster if the market turns unfavourable in the near term. Typically, real wealth creation happens over a long period of time—when you can ride out cycles and harness the power of compounding and rupee cost averaging. You could for example, use tools like a Systematic Investment Plan (SIP) in a mutual fund or a lump sum investment, to achieve your goal.
There are a number of investment experts who can manage your money and a large network of advisors who can help you evaluate the best solutions while helping you on your journey to achieving your life goals.
Learn from experiences, invest some time reading about finance and speak with financial experts. Your goals will help you direct your savings wisely and improve your overall financial health. Managing your savings well will empower you, and now is the perfect time, if you haven’t started already!
By Shalini Sekhri
The writer is chief business officer, Indiabulls Asset Management