Proper planning is the key to any long-term investment plan. If you have done your research and have a solid plan, the whole process will become easier and clearer for you.
But one thing that can help you go through with your plan is making it a goal-based investment. Most of us will have financial goals that need long-term investment. If you assign a goal towards your investments, you will be more encouraged as you know the wealth you are creating is going towards something that will benefit you. That is why goal-based investments are important. Going through with a goal-based investment is a matter of your willpower and mindset, but there are things that you can do to make sure your investment goals are met. Let’s take a look at the three important steps that will ensure you achieve your investment goals.
A common mistake a lot of people make while planning a long-term investment is setting a goal that is too ambitious. This will make investing towards your goal more difficult, and it could result in you abandoning your investment or prematurely withdrawing from it. The best way to go about this is by analysing your income and your monthly expenses and deciding on an amount that you can save without affecting your financials for monthly needs. You should also set a realistic time target as well. Pushing a ten-year target to make it five years will only increase the chance of you abandoning it prematurely.
For example, for Kavya, it would take her Rs. 2 lakh more to reach her dream goal. If she has an unrealistic target of reaching it within one year, she will have to put aside an amount which is more than she could afford every month and it could end up hampering the investment plans. Hence, she chose to invest to reach her goal in two years instead of one to make it more doable.
The most important part of a goal-based investment plan is finding the source of income for the investment. Ideally, you should be able to set aside some amount of money every month that will go towards your investment. An analysis of your cash flow will help figure that out. At the same time, if you feel that you do not have enough money to start investing, you could use the analysis to figure out where your money is going and cut down on expenses if you can. As you grow in your career and start earning more money, you could alter your plan to move more money towards your investment.
For example, Kavya’s start up gives her a humble profit of about Rs. 2 lakhs per month now. Dividing it between her partners, her share that she can use becomes less than Rs. 50,000. She had calculated that her monthly expenses would be close to Rs. 35,000. Here, deciding to invest the remaining whole Rs. 15,000 every month might not be ideal. There could be miscellaneous expenses, including related to health, that could derail her investment plan. Hence, she decided to stick with Rs. 10,000 per month which is safer and realistic.
Different investment goals and objectives could demand different investment methods. What works for you need not work for someone else. Hence, it becomes very important to make sure you choose the right investment method. An analysis of all possible investment methods and figuring out how they will complement your goal is the first step in identifying what’s right for you.
One of the fastest ways to grow your money is through stock markets. Investing in shares let you take advantage of the growing markets and companies. But it comes with a lot of risks. Stock markets are volatile and if you invest in the wrong place, there are chances for you to lose your money. Proper understanding of how the market works and being up to date with what’s happening in markets is important here. You could also take the help of a financial advisory that could point you towards the right path.
If the risk associated with investing in stock markets directly is not something that you can stomach, you could give mutual funds a try. In mutual fund investment, there will be an experienced fund manager who will manage your money according to the theme of the mutual fund. This could eliminate the risk of you choosing a wrong company to invest in.
Mutual funds also give you the option to invest through SIPs. SIPs let you invest a fixed amount every month to help you achieve your financial goals.
Exchange traded funds or ETFs are a basket of securities that are traded on the stock market. Like mutual funds, there is a fund manager, but it is not actively managed in most cases. This is an option if you want a mutual fund like an option that is more liquid. ETFs mostly follow are sector or an index, so you have more control over your investment as well. There are ETFs that track a commodity as well like gold ETFs.
NPS is a market-linked investment scheme for your retirement planning. It lets you invest money periodically and it will mature only when you turn 60.
PPF is another retirement-based investment plan like NPS but the main difference is that PPF is not market linked. Instead, your profit will be the interest that is accrued throughout your years of investment. PPF matures at the time of your retirement.
Kavya is a risk-averse person and investing directly in the market is not something she can stomach. Instead, she chose to invest in mutual funds through SIP to reach her goals slow and steady. What worked for Kavya need not work for you. Hence, it’s important to figure out your appetite. Follow the three steps mentioned above and choose the right plan for you and get one step closer to your dream goal!
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