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Do these two things if your long-term financial goal is near

There are two aspects to goal achievement, time and value. It could be that you have achieved the amount you earmarked for a particular goal, sooner than envisaged or it could be that you are close to the time you carved out for the goal.

While there is a lot of commentary around whether to invest or not given the current market level, there isn’t enough said about what you should do with your investments if you are indeed close to achieving your long-term goal. 

There are two aspects to goal achievement, time and value. It could be that you have achieved the amount you earmarked for a particular goal, sooner than envisaged or it could be that you are close to the time you carved out for the goal. 

Whatever the case may be, no matter where the markets are at the time, the event calls for your intervention. What should you do? Here are two suggestions that can help you manage this event with minimum risk. 

Re-assess the goal value

If you haven’t done so in regular frequency, then re-assessing the goal value closer to goal completion is a must. Give a gap of at least 2-3 years in doing this reassessment. When you start investing for a long-term goal, there are at least 8-10 years or more for goal completion. In this time, a lot can change. 

If you haven’t yet re-assessed the value of the goal, then at least three years before completion, sit with your family and have a conversation to reaffirm exactly what your expectation from a particular long-term goal was and whether that still stands. 

The goal amount itself can be higher or lower in absolute terms. Inflation can impact your goal amount more than expected over that long a period. Lastly, the nature of the goal itself may have shifted.

For example, you may be planning to send your child overseas for higher education 10 years later and that’s the long-term goal. However, in the interim, many international colleges may have set up campuses in India itself, negating the need to pursue that goal in the original form.

If you haven’t yet re-assessed the value of the goal, then at least three years before completion, sit with your family and have a conversation to reaffirm exactly what your expectation from a particular long-term goal was and whether that still stands. 

Take your gains

Long term goals call for allocation to risk assets like equity and ideally the closer you are to achieving it, the lower your exposure to risk should be. 

Let’s examine the scenario where you have achieved the value of your financial goal before time. If the time remaining to your goal is less than three years then it’s best to redeem the amount you need for your goal and reinvest it in something which offers low risk and stable returns. 

The money you invest will continue to grow and compound, albeit at a lower rate. The more important aspect is that your capital will no longer be at risk. While doing this switchover, keep in mind that the tax incidence will increase. Once at the time you withdraw from equity assets and then again when you finally redeem. 

Nevertheless, the safety of capital is more important rather than tax saving when it comes to long term financial goals. 

If you are around 18-24 months away from your goal and have not achieved the value you expected, even then, withdraw from the risk asset and reinvest in assets where capital will be safe. 

Long term goal planning is a strategic part of your financial plan, but it needn’t be static. Be flexible depending on events, market change and circumstances as they evolve in that long term period. 

 

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