6 Reasons why Goal based Investing is such a Powerful Tool
Achieving one’s financial goals is more important than outperforming the market.
Everyday we set goals for ourselves – eat right, exercise, lose weight, reach/ leave work on time – the list goes on.
The difference between successful and ineffective money management dwells in knowing what one wants to accomplish and finding the right way to do it.
Goals based investment is an outgrowth of behavioural finance, which provides insights on how we make decisions about money and why we make mistakes managing it. We at MintWalk have used these learnings extensively to ensure that our Users do not fall for the same set of biases which prevent most others from making good financial choices.
Setting financial goals or dreams (as we call it) motivate us to work towards achieving them. But, to be a more powerful emotional calling it needs to have the following components
1. Visual Image
“A picture tells a thousand words” is a cliché but has a strong foundation in fact. More than the other four senses combined, our neurons are dedicated to vision. The fact is images grab our attention, inspire and speak to us on a different level. A goal that you can actually see is much more powerful than writing down on a checklist.
In MintWalk we ask you to assign a picture to your dreams. The image of a rider on an Enfield in the Himalayas is far more motivating than writing “I want to buy an Enfield Continental”.
2. Deadline
One of the best ways to achieve a goal is to put a deadline to it. Want to run your first marathon? That’s fantastic, but unless you decide which one, when or where how will you complete this goal? You don’t need to put the exact day but impose a date on yourself, and you’re much more likely to reach it.
MintWalk encourages you to assign a deadline. Want to buy that house? Do it in 3 years. Or own your car in 18 months. Next winter you want to enjoy a vacation on the beach. This allows us to specify the investments required and compels you to decide what it takes to achieve that goal.
3. Declaration to the World
Creating a Support group of Family & Friends which motivates you towards your goal and holds you accountable is one of the best ways to reach your goals. When you tell people your goals, they will jump in the boat with you and help you get there. The support you’ll get from your network will surprise you.
MintWalk encourages you to share your dreams. Click and share on whatsapp, social media or even email and wait as the support pours in!
Why Goal based investing is so Powerful
1. Makes any Dream possible
An individualized plan suggesting the savings amount per month, duration of months and the set of investments best suited for the plan takes a dream from a realm of imagination to the domain of possibility. Instead of thinking about saving for a house that costs Rs. 70 lakhs, the focus shifts to saving Rs 5,800 per month.
MintWalk takes the guesswork out of planning for your dreams. With less confusion and a set path, you are more likely to achieve your goals faster.
2. Gets the market to make money for you
Planning ahead is an intelligent decision. The earlier you start saving for a goal, the less you’ll actually have to save. The market reaps returns and adds it to your principal amount. The longer you stay invested, higher the returns.
Eg. If you want to buy a car the cost of which would be 6Lakhs in 5 years, you would need to save only Rs 7,800 per month. But if you waited until only 12 months were left, then you would need to save a whopping Rs. 48,200 per month! The earlier you start, the more time Mr Market has to work on our savings.
3. Custom Made Plans
No two dreams can be the same. Even the ability to take extra risks for a goal varies from person to person.
MintWalk’s goal-based planning matches your time horizon to your asset allocation. This means you take on the best amount of risk. Often people invest in equities with 6 – 12 months horizon but have no equity exposure for long term goals. When you misallocate, it can mean saving too much or too little. Missing out on returns with too conservative a setting, or missing your goal if you take on too much risk.
We recommend debt mutual funds for short term goals that carry almost no risk. These are invested in loans of companies and the government. But for a 5 year goal, MintWalk suggests a mix of equity and debt mutual funds that enjoy lower risks in long term and higher returns of Equity mutual funds.
A customized plan ensures you sail to your dreams smoothly achieving optimal returns.
4. Direct feedback leads to discipline
Missing a particular saving date has a direct impact on the goal. Knowing that your goal can be set back due to this delay will keep you on track.
My Dream is to send my daughter Mishka to the US for her graduation. She is 5 years old. I will feel the pinch if I miss any payment for this goal. I realize that if I miss any saving dates, she might not be able to get the education I want for her. This keeps me disciplined.
5. Provides Right measures to track your goals
People tend to focus on short term performance – how much return did my portfolio generate since last week? But, short term performance is not an indicator of long term returns and only leads to heart burn.
By providing goal-based portfolio tracking, MintWalk ensures focus on goals. It provides answers to the following on the go:
– Are you on track to achieve your goals?
– Have you saved enough?
– Do you need to save more?
After all, the efficacy of an investment strategy should not be measured only by traditional yardsticks like 6 month returns, variance, sharpe ratios etc.
Rather how effective is the strategy in helping you reach your goals.
6. Helps you Live Guilt free
We are often burdened with worry and guilt when we are not doing enough to achieve our goals.
Through goal based investing you achieve a higher sense of clarity and control over your financial lives. It gives you confidence that you are doing what it takes to reach your goal, making you guilt free
Stop living in the fear of investing! Combine your intent with our competence to make for a friction less investing journey.
Shiv Nandan Negi, co-founder, MintWalk - Fintech startup working to Simplify Financial Lives. Previously, he was Managing Director - Mount Kellett Capital Management LP and has over 16+ years of experience in finance.
Thanks for sharing superb informations. Your web site is so cool. I am impressed by the details that you’ve on this web site. It reveals how nicely you understand this subject. Bookmarked this web page, will come back for extra articles. You, my pal, ROCK! I found just the info I already searched everywhere and simply couldn’t come across. What an ideal website.