Advantages of Investment for your Goals
December 12, 2018
Investing without goals is like taking a trip without knowing the destination. Very often, beginner investors (and even seasoned pros) make the mistake of picking an investment product based solely on its market performance. The result? They are left with an unplanned and unstructured portfolio that fails to meet their specific financial requirements.
Setting clear goals like buying a home, saving for retirement, funding for college and more should play a key role in helping you choose the right investment plans.
Here’s how goal-based investing helps you make successful investments:
1. The Power of Returns : You move from Saving to Investing
One of the best ways to invest is to reap the benefits of compound returns. If you want to achieve your long-term goals, move from saving money in a Savings Account to investing money the right way. This is where compound returns come into the picture. By starting your investments early, you not only enjoy higher returns but also beat inflation.
2. Your Goals become Achievable
By having the right investment plan in place, you get a clear idea of what you need and how to get there. Investment goals quantify the funds you need to achieve individual financial goals, while specifying the time limit for each goal. It breaks your targets down into micro goals. So you inculcate the habit of saving regularly to make your financial goals come true.
3. You don’t Undershoot your Target
Most people don’t have a realistic idea of how much money they need for a specific goal like retirement. Since retirement seems far away, they don’t start early and miss out on the benefits of compound returns. With investment goals and objectives, you discover how much you need for all your long-term goals and figure out the actual amount and time limit to meet your goals.
4. You Optimise your Risks
Different goals require investments which come with varying degrees of risk. For instance, you cannot choose high-risk investment options for funding your child’s higher education.
By setting up investment goals, you invest your money in the right products with an appropriate risk portfolio for each of your financial goals.
5. You Achieve Better Returns
Goal-based wealth management is the best way to invest money because it matches your time horizon with asset allocation. This means, you avoid misallocating (saving too much or too little) and take the optimum amount of risk, thereby helping you achieve optimal returns.
When you plan a trip, you always have a particular destination in mind. The same applies to your investments. By taking a goal-based approach to investing, you improve the chances of what you wish to achieve — whether taking your family on an overseas vacation, buying your dream home or planning a comfortable retirement.
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