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Your portfolio of goals determines your portfolio of investments

Imagine having guests over for dinner without knowing anything about their food preferences and habits. Whether you decide to cook or order in, you’ll probably be lost trying to figure out if they eat meat or not, what their spice tolerance is like, do they have any allergies, and what kind of cuisine they enjoy. Hence, planning the menu after asking these questions would ensure that you host a successful dinner. Like with this, many things in life that you want to do well in require careful planning before you start to execute. Investing is no different. 

Building your investment portfolio doesn’t begin with identifying what assets you want to invest in but rather what your financial goals are. There are several things to ask yourself when you get down to goal planning and here is a helpful framework for this exercise. 

What are you saving for? 

  • Figure out the why

Unless you know the ‘why’ behind saving money, it will be very hard to stay disciplined and focused. Setting clear financial goals will help you stick to your decided budget and allow you to meet your goals in the desired timeline. So, ask yourself, ‘What am I saving for?’ Is it for crossing certain countries off your bucket list or do you want to save for the down payment of your home? Do you want to upgrade your car or build your retirement corpus? 

  • Goals don’t have to be sequential 

As it may have already struck you, you may have more than one financial goal at any given time. You may want to spend a month in France and also want to be saving for retirement. And that’s a good thing! Your goals don’t have to be sequential – you don’t need to restrict yourself to meeting one goal before you move to another. Identifying multiple financial goals right now will allow you to plan for each of them simultaneously. If you have more goals than you can save for at one time, the goals that are more critical and immediate may be prioritised. 

How long do you have?

  • Categorise your goals into three buckets 

It’s best to categorise your goals into short-term, medium-term, and long-term goals. Knowing by when you want to meet a particular goal, will help determine which bucket it falls into. So, for instance, if you want to take that trip to France in one year, that will be a short-term goal. If you want to have your first home’s down payment saved up in the next six years, that will be your medium-term goal. While a goal like saving for retirement will be a long-term goal because it may still be a few decades away. Knowing the timeline of your goals will help you determine your investment horizon i.e for how long you can keep your money invested in a particular financial security.

  • Have an estimate and account for inflation 

When listing down your financial goals, you should also have an estimate of the amount you will need. For instance, if you already have your dream home pegged down, you should do your research to figure out how much a home like that in the area you want to live in costs. There is an important thing to consider when estimating the amount that is inflation. Your dream home may cost about Rs 4 crore right now but six years down the line, that cost is going to increase due to inflation and other economic trends. So you will have to make sure you’re investing in assets that give inflation-beating returns such as stocks. 

How much risk can you take?

  • Determine your risk appetite 

Consider someone who is 30 and has no dependents. They have three more income-earning decades ahead of them and their earning potential is only going to increase. Conversely, consider someone who is 50 and has two dependent children. They have ten years before their retirement, have to fund their children’s higher education, and are servicing two loans including a home loan. The kind of investment risk that the first person can take is significantly more than the second person. Hence, you too, need to determine what your risk appetite is based on factors such as income, age, number of dependents, etc. 

  • Consider specific goals 

Once you have a general idea of your risk appetite, you also need to consider individual goals. For instance, it’s advisable to put money for your retirement in comparatively safer instruments such as pension funds by the government. Especially if your retirement is close. However, for a goal such as buying a car or travelling, where you have a shorter amount of time and the stakes are high but not as high as when investing for your retirement corpus, you can consider market-linked investments such as stocks and ETFs that have the possibility of providing higher returns. 

Begin now with Systematic Investment Plans (SIP)

What is an SIP? It is a method of investing where you invest a fixed amount of money at regular intervals. SIP investing allows you to do three important things:

  1. Start investing right away with small amounts  
  2. Develop a habit of disciplined savings 
  3. Benefit from dollar-cost averaging 

Dollar-cost averaging is an investing strategy that SIP investing allows for. It employs investing a specific amount of money at regular intervals in a specific asset irrespective of what the market price is. Over time, this helps iron out market fluctuations and the average price of your asset turns out to be lower. 
But if you’re feeling slightly overwhelmed right about now trying to figure out everything at once, it’s okay. You don’t have to be a financial expert yourself to invest smartly and build a diversified portfolio. You can simply identify what your investment goals are on the Appreciate app and our AI-based algorithm will invest your monthly SIP money into the right stocks based on your goal, risk profile, and market conditions. Sign up on Appreciate to know more about how we help you build your ideal portfolio that’s linked to your goals.

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