The Power of Goal-Based Investing Demystified - Here’s How It Works

Purpose, amount and time - once you have these figured out, the road is pretty straightforward

Goal-based investing

Source - iStock/Lakshmiprasad S

When it comes to investing for the future, there are primarily three kinds of people - those who simply save, those who invest some amount but without any specific goals in mind (the ‘Que Sera, Sera’ investor maybe?), and then the most disciplined goal-based investor. Now if you’re already here, reading this piece, there’s a very good chance you’re either someone who’s saving part of their income but wants to turn their savings into money that grows steadily, or you’re investing in some form or the other and yet are somewhat lost in this quagmire of investment options and methods. Well, guess what? You’re not alone. And the good news, jumping into the third bracket we mentioned above is not at all complicated. As long as you know what some of your specific goals are, and are willing to take a disciplined approach towards meeting them, the road ahead is fairly straightforward.

So, what exactly is goal-based investing?

Simply put, a financial goal has three variables - purpose, amount and time. Do you know what you want to spend your money on in the near or distant future? Do you know how much money you’ll need to do so? Do you know how long you’ll need to invest? If you answered yes to all, then congratulations, you are now a goal-based investor. But here’s the thing - it’s not easy to do so without some kind of expertise of the investment ecosystem. And it can’t be just any run-of-the-mill platform. It needs to be something that not only understands your needs, but also has the proven ability to offer you, the investor, a relatively safe path to investing, where your specific goal and not your FOMO, is the fuel behind your investing journey. This is where wealth management platforms like Kuvera come in. With proven expertise in wealth management, Kuvera's state-of-the-art algorithm helps you figure out how much you need to invest, for how long, and most importantly, where to invest so as to comfortably meet your goals.

Kuvera's algorithm also goes above and beyond than simply suggesting how much to save and for how long. The fundamental principle that sets Kuvera apart from other platforms is that it focuses on the most optimal portfolio allocation that will help you meet those goals. Its calculators exclusively show direct mutual fund plans and will give you options to customize your portfolio based on your needs.

Is knowing your goals enough to figure out where and how to invest?

Well, it’s a good starting point for sure, but there’s more to it. Pragmatically speaking, even goals can be kind of flexible at times. You might want to build a house in 10 years, buy an SUV in 2 years, build a corpus to fund your children’s education in 15 years, save up for retirement in 30 years, and might also want to save up enough to take a year off from work and travel around the world in 3 years. Not all of these goals are equally important, right? Some are ‘must-haves’ while some others are ‘nice to have’. Which is why you need to understand the power of unified goal-based investing. Using a unified method, you can potentially stand to invest a lesser amount monthly than what you would have invested had you only considered the sum-total of the investment to meet the individual goals you set for yourself.

How does this really work?

Let’s simplify and see the math behind this method. Say, you have two goals –

Goal 1 – requires a SIP of 5k for 5 years

Goal 2 – requires a SIP of 10k for 10 years

A simple advice would be investing Rs 15k for 5 years and then Rs 10k from year 5 to 10.

Notice this –

Your SIP amount is not constant for 10 years.

You are being asked to invest more now and less later. Your income, on the other hand, is likely to increase over time. Regardless if you can invest Rs 15k today you can invest Rs 15k five years from now, so you shouldn’t be asked to decrease your SIP amount.

With unified goal planning, a platform like Kuvera helps you better your plan. Using a unified goal planner Kuvera’s algorithm calculates that you can invest Rs 12k every month for 10 years to achieve both the goals. So you can start smaller today and never change your SIP amount. That is a much more feasible task and definitely easier on the wallet when you’re starting your financial goal journey.