What is Goal-Based Investment?

Today’s technology and opportunities created a large advantage for people to start investing. Effortless trading platforms anyone from any background can access make it easier for people to invest in different ways, offering market analyses and creating economic calendars. The actual investing starts once the investor understands the theoretical part of this process. Goal-based investing (GBI) steps in at this point as an approach that specifies the financial goals of investors, helping them meet their personal financial goals. Investing without a goal might increase the possibility of investing in the wrong asset, so the main aim of this practice is to create a vision depending on a certain goal to eliminate the distractions of market fluctuation. 

Considering a Goal for the Investment 

Various factors come into play while choosing the investment plan that is the most beneficial for your assets. In a goal-based investing plan, distributing your assets is largely determined by how long you have before reaching your goal.  

An investor planning a vacation for the coming year would manage their assets with less caution than someone saving for their children’s college education over eight years. This time-planning determines the asset allocation; how far into the future your goal is due sets an expectation for the returns.  

Inflation also should be taken into account while investing to achieve certain goals. While setting a goal, you must compare your current savings and how much you need to save to meet your goal.

What are the Types of Goal-Based Investment? 

·       Short-Term Goal-Based Investment 

Short-term goal-based investment is ideal if you plan to meet your goal in two or three years. With the time limitation, you might want to prefer low-risk investments that guarantee the rate of return. Since they are highly liquid, creating a savings account can be a great start for a short-term investment. Investing in bonds can be another option as the interest earned is usually higher than a savings account. Also, you can pick bonds that mature and are available on a specific date in the near future. This ensures a high level of protection while avoiding the risks of stocks. 

  

·       Medium-Term Goal-Based Investment 

Goals that can be achieved in four to eight years are considered medium-term investments. Medium-term goal-based investments provide greater latitude in choosing investment options but can be affected by market fluctuations more compared to short-term investments. While investing in equity funds might be risky, diversifying your portfolio with debt mutual funds can help to mitigate the risk. Equity index funds are a type of passive investment in which the fund manager simply tries to match the index’s performance. An aggressive investor might choose a balanced mix of bond and equity funds to achieve a medium-term goal. 

 

·       Long-Term Goal-Based Investment 

Long-term investments can take eight to ten years, sometimes even longer, and they allow investors to take more risks as there is some time to reach the goal. Equity mutual funds or shares of individual companies are the two options you could try to get to the amount to reach your goal. Equity investments are risky but suitable for long-term goal-based investments. Goal-based investing can help you gain more clarity over your planning and execution, be more disciplined about saving and investing, and enable you to achieve more with smaller investments. 

The Bottom Line 

There are many investment instruments, and when you consider investing, it’s easy to get distracted by potential alternatives. It becomes easier to manage your assets once you set your goal. Goal-based investing is the most straightforward yet affordable method to minimize confusion and risk before the investment process.