Goal-Based Investing Vs Return-Based Investing.

Have you ever set out on a journey before deciding where and how to go? That is what goal planning is in investment. As the name suggests, goal-based investing is only investing with a specific life goal or objective.  So before you invest, ask yourself, “What exactly are you investing for?”.

Goal-based investing is a strategic approach to investing that involves setting a specific life goal or objective before making any investment decisions. This approach differs from returns-based investing, which prioritizes the highest return-generating investments. Instead, goal-based investing focuses on reaching the desired returns on a risk-adjusted basis that meets an individual’s goals.

By having a clear goal in mind, goal-based investing serves as a guide throughout the investment journey. This approach is structured and well-thought-out, ensuring that each investment serves a specific purpose. This single-minded focus on life goals eliminates unwanted noise around market conditions and involves knowledge, discipline, and patience.

In contrast, returns-based investing tends to be driven by fear and greed, resulting in ill-planned and haphazard investing when markets turn volatile. Goal-based investing, on the other hand, increases an individual’s commitment to consistently invest towards accomplishing their life goals. It allows them to continuously monitor their progress and adjust their strategy if necessary.

To become a goal-based investor, the first step is to define the aim of your investment and the time you have to achieve it. This goal can be personal, such as planning for children’s education, retirement, buying a new house, or achieving financial independence. Other factors, such as age, risk tolerance, existing financial situation, and investment horizon, are also considered when creating an investment roadmap and asset allocation.

Ultimately, the goal of goal-based investing is to achieve what was set out to accomplish. By staying focused and cutting out the noise around market movements, individuals can enjoy a satisfying and peaceful investment life. Seeking professional guidance may also help in developing a customized investment plan that aligns with individual needs and circumstances.