What Is Goal-Based Investment Planning?

BLOG | February 8, 2024

Goal-based investment planning is a relatively novel approach to wealth management that centers around investing to achieve predetermined life goals.

In goal-based investing (GBI), a wealth manager or financial investment advisor assists in measuring and progressing towards distinct life goals, such as saving for children’s education or building a retirement fund, rather than solely focusing on generating the highest portfolio return.

Understanding Goal-Based Investing:

Every individual harbours financial goals they aspire to achieve within short-term, medium-term, or long-term periods. Consistently investing to attain these respective financial goals is referred to as goal-based investing.

For example, if you plan to purchase a luxury car within the next 2-3 years, it constitutes a short-term investment goal. Conversely, saving for retirement or your children’s education is categorized as a long-term investment goal.

Diverging from traditional investing, goal-based investing becomes a metric of success in relation to how effectively the investor meets their personal life goals, rather than evaluating how well their investments perform against the market average over a given period.

Goal-based investing redefines success in investments by aligning with individual financial needs and goals.

If the primary goals involve saving for an imminent retirement and funding the education of young grandchildren, the investment strategy would be more conservative for the former and relatively aggressive for the latter.

The benefits of goal-based investing include:

1. Enhanced commitment to life goals through monitoring and active participation in tangible progress.

2. Reduction in impulsive decision-making and overreaction in highly fluctuating markets.

3. Categorization of short-term, medium-term, and long-term financial goals.

4. Detailed insights into the availability of personal assets.

5. Asset allocation strategy and evaluation of risk appetite.

6. Facilitation in selecting the right investments and creating an appropriate portfolio.

Goal-based investing focuses on life goals rather than the pursuit of a high portfolio return. Goal-based investment planning highlights the achievement of financial goals that hold significance in one’s personal life.

How Goal-Based Investment Planning Works:

1. Risk Profiling

2. Review of existing Assets and Liabilities

3. Counselling to remove unproductive assets

4. Assessment of Monetary Goals (retirement, child education, housing, etc.)

5. Prioritization of Monetary Goals

6. Goal Affordability

7. Goal-based Investment Advice

8. Customized Asset Allocation

9. Detailed Investment Plan (including mutual funds)

10. Investment in open-end fund Direct Plans

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