When it comes to planning and investing for all your goals, the saying “one plan fits all” doesn’t do. Just like one investment will not cater to all your goals and objectives.
Every goal is different and has its own requirements. For example, based on the time horizon itself, short-term goals are those which have to be achieved immediately whereas long-term goals have a good time horizon to be planned and saved for.
Now, are you wondering how all the goals can be achieved by you? In this article, we will tell you how you can smartly plan for your short-term and long-term goals.
Types of Goals
Short-term goals: These are the goals that you want to achieve in the near future. The near future can be today, this week, this month, this year, or within 2 years.
These are goals that need you to plan and be prepared immediately to ensure you achieve them on time.
Some examples of short-term goals are:
- Paying for your child’s school fees every year.
- Purchasing a smartphone.
- Purchasing a laptop.
- Purchasing jewelry for an occasion, etc.
- Planning for an international trip with your family?
Long-term goals: These are the goals that provide you with good bandwidth to plan and be prepared to achieve them. There is no specific definition of what long-term really means.
It has a timeline of anywhere more than 5 years.
Some examples of long-term goals are:
- Saving for your child’s higher education when your kid is young.
- Saving for your child’s wedding.
- Planning to purchase a car
- Planning to buy a house.
- Saving up for your retirement corpus.
Investment for short-term goals
There are multiple ways to save for short-term goals which will suit your risk appetite, the tenure of your investment, and your needs.
- Savings Accounts: You can always maintain a cash balance to fulfill your immediate goals and objectives. But usually, it is not ideal to maintain your savings only in your savings accounts as it does not even generate inflation-beating returns. In long run, you may end up losing money. It is advised to only maintain an emergency corpus in your savings accounts to have some liquid cash.
- Fixed deposits: Fixed deposits are where you invest in an FD with a bank and there is an interest on the investment received by the investor. FDs have a lock-in ranging between 7 days to 10 years. But even after the interest rate revision by the Central Bank, the FD rates are still not generating inflation-beating returns, which causes a loss to the customer.
- Debt mutual funds: This is the best option to save for your short-term goals. There are multiple options for an investor to choose from. For example, if an investor has a very short tenure for a goal, one can choose from an ultra-short duration fund, a money market fund, or a liquid fund. Likewise, with a little longer horizon, an investor can choose from a corporate bond, medium-term bond, etc. Debt funds generate returns that are at par with the inflation rate.
Investment for long-term goals
One has multiple instruments to invest to achieve their long-term goals as well, based on the risk appetite, tenure, and requirements.
- Direct Equity: An investor can directly invest in the stocks of a company as an investment option. One thing to note here is that direct equity investing is time-consuming. One cannot just randomly choose a stock. Detailed research and analysis have to be done to select a stock. Also, while having direct equity exposure, one has to be prepared for either major profits or major losses due to the high market volatility.
- Mutual funds: While investing for long-term goals, an investor has options of both equity mutual funds and hybrid mutual funds. One does not have to do such detailed analysis while doing stock picking for a mutual fund. The fund managers actively manage and rebalance the portfolio as per the market conditions. So, there is always an added advantage of an expert management team in mutual funds.
- Real estate: In India, real estate is the most sought for long-term investments. Yes, having a property in one’s name is good and sounds powerful. But it does not provide liquidity to an investor. It may so happen that at the time of achieving a goal, one may not be able to sell the property.
The smart way of investing for short-term and long-term goals
An individual will never have just one goal. There will be multiple goals. As discussed above, just like “one size does not fit all”, one investment does not cater to all goals and objectives.
The best solution for this is following a goal-based planning approach. In this approach, all goals are properly planned for.
- First, the goals and objectives are clearly mentioned along with a monetary value attached to them. For example, if one of the goals is to pay for the child’s school fees the amount needed is also mentioned along with the goal.
- Then, the time horizon is specified. After setting the goals, the investor has to set how much time the investor has to save up and achieve the goal.
- After specifying the time horizons, investors’ investment characteristics are specified. What does this mean? These characteristics include the risk appetite of the investor and what amount the investor is able to invest to achieve all his goals.
Sounds scary and lengthy right? Not to worry. You can always approach a Registered Investment Advisor to help you with a detailed investment plan to make your investment journey smoother.
Conclusion
Goal-based planning is the smartest way for you to make one detailed investment plan to help you achieve all your goals so that you do not miss out on your dreams!
A Registered investment advisor also ensures that your portfolio is well diversified and periodically rebalanced to optimize the portfolio’s risk and volatility.
