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?”.

Unlike returns-based investing, the investors do not focus on the highest return-generating investment, but the aim is to reach the desired returns on a risk-adjusted basis that meet their goals.

Goal-based investing serves as a guide until you reach your goal. It is a structured, well-thought-out process for investing in which you know the purpose of each rupee. Here the single-minded focus is on your life goals. Focus on the goals eliminates the undesired noise around the market conditions. Thus it is a holistic approach which involves knowledge, discipline and patience.

While in returns-based investing, fear and greed become the driving forces to earn high returns. When markets turn volatile, investors tend to pull out their money, or they typically increase their investments when the markets are already overheated. Market timing results in ill-planned and haphazard investing and investment mistakes.

Goal-based investing increases individuals’ commitment to invest consistently to accomplish their life goals. It helps them continuously monitor the progress of their destination. If under-investing, they can improvise their strategy to reach their goal in time.

How to become a goal-based investor? 

The first step to becoming a goal-based investor is to define the aim of your investment and how much time you have to achieve it. 

The goal can be like planning for children’s education, retirement, buying a new house or even financial independence or maybe just becoming a crorepati by wealth creation. It could be anything apart from this and is very personal.

The primary investment objective, age, risk tolerance, existing financial situation and investment horizon are the factors considered to create the investment roadmap and asset allocation while planning investments with this approach. 

The ultimate goal is to achieve what we set out to achieve. The ones who stay focused and cut the noise around market movements have a satisfying and peaceful investment life.