What is the purpose of investing? The answer is obvious to achieve certain financial goals. Naturally, we all have dreams, which we want to tick off before we reach old age, whether it be a trip abroad or the purchase of your own house. But how do you get there?
It is where the goal-based approach comes in. The idea is simple: investments are made to achieve specific goals. Once the goals are set, it’s easier to get an idea of the amount of investment needed to reach them.
Goal-based investments work because otherwise, you could fall into the trap of generating maximum return without having to monitor the goals.
Financial goals are mainly determined by your life goals, such as deciding to retire at a specific age or preparing to send your child abroad to study.
The amount of money required to reach these goals is determined by the current cost (example: current monthly expenses for retirement and the cost of education today) and when you want to reach them.
So the amount you have to set aside today and each month until the goal is reached will be determined using these two parameters, as well as inflation and the expected rate of return.
Investing in an emergency or vacation fund next year is not the same as investing in retirement.
The investment choices you make are directly related to the objective for which you are investing in.
The objective determines the investment period and the asset allocation you choose. And therefore, the funds in which you invest depend on the objective.
The approach to investing by objectives is simple.
First, one must ask oneself for what objectives one invests. It requires a lot of planning and thinking. It is also necessary to prioritize the most important objectives.
Even before starting goal-oriented investments, one must ensure that one’s risks are adequately covered through possible insurance. Once the objectives have been identified with a timeline, the next step is to select specific investments to achieve those objectives and start the investment process.
It is also important to regularly review these investments and make any necessary adjustments.
Goal-based investing also highlights how important it is to start investing early to achieve a particular goal.
There are definite advantages to investing in goals. We have a clear idea of how the investments help to achieve a particular objective and, therefore, helps to discipline the investment process. Goal-based investments also tend to dissuade an investor from overreacting to market fluctuations and making impulsive investment decisions.
Investing is looking to the future.
Anyone looking for an attractive return should have a clear goal in mind. Investing is simply looking to the future. Above all, stop for a moment on the concept of risk. Investing can pay off a lot, but the risk is also greater. Decide for yourself the risk you want to take.
Keep a cool head!
Remember that prices do not always go up. As an investor, keep in mind that a fall in prices is always possible. If this occurs to you, do not make hasty decisions that you regret later. Do not get carried away too quickly due to price fluctuations, and stay the course on your goal.
You can support yourself in your financial planning by taking investing training that will introduce you to proven strategies that can help you start your career as a successful investor.