Navigating uncertainty is a part of life. This is true even of your financial life and investments. However, uncertainty, can give you the jitters – especially when it comes to finances. Some might think that for investments, the answer lies in sticking to fixed return securities only. That approach, takes away the uncertainty but will not help you create wealth. To create wealth, you have to include market linked investments like equity in your portfolio. While doing so, rely on well-defined goals to tide over uncertainty.
If you have started your goal planning early and remained disciplined, then any excess return or even a higher than expected increase in your income earning capacity is likely to give you undefined monetary surplus. Thanks to your goal planning, you can easily identify this surplus and utilise it as you desire towards improving your lifestyle.
Here is how goals can help.
1. Goals will not let you panic – In times of distress when markets are correcting and you see red in your portfolio, having a goal gives you clarity. Long term goals are best served by equity investments and need you to remain invested for 5-7 years. Negative returns in the first few years, should not make you panic if you have at least another 5 years before you need the money for your defined goal. If you don’t define the goal, its easy to panic and exit at a loss.
2. Goals help you allocate better – What if all your money is invested in equity and showing losses? Then ideally all your goals should be long term in nature. If you have allocated funds to equity for a need that arises next year, then a market correction will rightly make you anxious. The reaction in most cases will be to redeem and never come back to growth assets like equity. This is likely to happen if you invest looking purely at past returns rather than on the basis of your defined goals and financial objectives.
Let’s say the objective is to save enough for a down payment on a residential property within two years. You need to start regular investments; but, allocate to debt rather than equity. On the other hand, if you are saving for retirement 10 years away, then allocate to equity. This way of defining goals and allocating funds, takes away uncertainty where it’s not desired.
3. Goals help you enjoy your money – Market linked investment returns are usually estimated in advance. If you have started your goal planning early and remained disciplined, then any excess return or even a higher than expected increase in your income earning capacity is likely to give you undefined monetary surplus. Thanks to your goal planning, you can easily identify this surplus and utilise it as you desire towards improving your lifestyle.
4. Goals help you make up the shortfall – The opposite can also happen – you may be looking at a shortfall before your goal is reached. Once again having defined the goal beforehand means you can take steps to fill in the shortfall by cutting back on expenses and investing higher amounts to achieve your goals.
Investing for your future is a must. Choosing investments on the basis of quantifiable, defined goals will increase the probability of achieving your desired outcome. Goals help you stay focused rather than get carried away by the many emotions than external uncertainty can bring forth.