Goal Based Investing: Importance of setting the Financial Goals

Goal-Based Investing is a newer approach to wealth management. Investing in stocks, bonds, and other investment vehicles is an excellent option for individuals to increase their wealth. It is also an intelligent way of saving up on money. These investments provide higher returns than the traditional methods of saving in financial institutions through savings accounts, fixed deposits, etcetera.

What is Goal-Based Investing?

Goal-based investing is an approach wherein an investment firm’s clients or wealth managers measure their progress in attaining specific life goals in the future instead of focusing on gaining the highest possible returns on their portfolios. These goals can vary from saving for children’s education, saving for after-retirement life, buying that dream house, starting a business, or even funding your wedding. Goal-based investing provides a clearer picture of your objectives by creating a roadmap to make those goals a reality.

It is a more tangible process than traditional investment as the investor can observe and participate in achieving their life goals and increasing their commitment. Online investing has made it easier for investors to tackle the whole process by tracking the progress achieved toward meeting their financial goals. This also helps manage your risk appetite and curbs impulsive decisions and overreactions to market fluctuations.

Importance of setting financial goals

Your financial needs help you identify your financial goals. These goals are essential in many ways. Here are a few of them.


  • Investment Discipline and purpose

Investments without goals make investors lose hope in a bearish market. Also, when no goals are driving you, it is easy to back out or stop investing over time. Knowing the end goal makes it easier to determine the amount for investment and the time horizon. Financial goals take out the greed and fear in investors through disciplined and long term investment and motivate them to stay on course as they can track their progress periodically. Investing apps through online investments has made it easier to track this. A defined set of goals helps to strategise and enhance their budgets and not let their emotions overwhelm them in case of market fluctuations.


  • Choosing the right assets

Once the goal is clear, it is easier to decide how much to invest, the life cover needed, and what instrument to invest in. The investor also needs to make sure of their post-retirement financial freedom. So, the investor can now decide if investing in bonds, mutual funds, shares, or something else entirely will aid in achieving their financial aims and thereby not be affected by herd mentality.


  • Portfolio Diversification

It is recommended to have a diverse portfolio. A diverse portfolio lowers risks as the returns are not dependent on a single type of asset or some stocks. Thus, market volatility does not affect meeting the set financial goals and wealth creation in the long term. Investing app are a kind of one-stop-shop which provides all kinds of information about each investment product and helps identify the right match for your financial needs.


  • Avoiding Debt Trap

If the financial goals are not mapped out and appropriate investments are made for them, the individual probably will not have the money in the proper time. This may drive them to opt for loans to finance their goals. This might lead to a financial trap. Investors can avoid this unpleasant circumstance if their financial goals are clearly defined, and they follow a goal-based investment plan.


  • Financial Independence

Financial goals generally have a timeline. The investments made to meet these make the individual free of any financial difficulties or stress, thereby making the investor financially independent.

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