How do I set up a goal and invest?

Priyanka Sharma

11 May 2017

New Page 1

Shoot for the moon. Even if you miss, you'll land among stars! While this is true for many cases, this is not what you would want to do when you are planning your finances. There is a chance that you might not land among the stars; improper planning could land you back to square one or worse in a ruined financial state.

Before you start investing, you need to define your goal for which you are saving for. This is because to save for the future, you are cutting back on your spending now. This sacrifice must not be in vain; you need to get an appropriate reward for this sacrifice. Goal-based investing is just what would help you.

Type of goals

No matter how different and unique your goals are, you are bound to find the correct financial instrument. However, the first step of successful planning is to set the goal. What are the common goals that many of you could relate to?

  • Build sufficient amount for retirement

  • Buy a vacation home/Save a down payment for a home

  • Create an income stream after retirement

  • Start a new business

  • Pay for your wedding

  • Save for your children’s education/marriage

  • Take a special vacation

  • All of the above

Timeline to achieve the goal

Setting a goal is important as they help you define the timeline in which you need to achieve the goals. For example, paying for your vacation, creating a constant income stream post-retirement, or your wedding could be a short-term goal while planning for your retirement could be a long-term goal.

Risk Tolerance

Your goals will also help you determine your risk tolerance. Your age will also play a factor in determining your risk tolerance. If you are in early stages of your career, you can afford to take more risks as you might not have been married. However, if you are a businessman and have a family dependent on you, you might not want to be too adventurous.

Liquidity Requirements

Your investment goals will also determine your liquidity requirements. If you are investing post having an emergency fund, you might want to invest in an investment option that would not provide you instant liquidity such as real estate. However, if you do not have an emergency fund, you might want to invest in mutual funds to gain while having the option of quick liquidity.

4 Tips to set your goals

Setting appropriate goals can be difficult. Consider the following tips before setting up your goals.

1. Know why you are investing.

  • You can set the right goals if you can point to a specific reason for investing.

  • This will also provide you with a way to stay motivated.

2. Be realistic:

  • Do not grandly proclaim that you can invest Rs.5000 while you aren’t even sure of the groceries.

  • Consider your financial situation and set achievable goals.

3. Break it down:

  • Chip down your investment goals into easy milestones.

  • Start out small and increase gradually.

4. Start simple:

  • If you are unsure whether you can really stick to the plan, start with a simple plan.

  • Also, begin with simple SIPs and do not assume that you know everything about equities.

To sum it up

Having an aim in life is important. However, having a goal while financial planning is furthermore important. If you follow the above-mentioned tips, you could better align your goals with your needs.


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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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How do I set up a goal and invest?

Priyanka Sharma

11 May 2017

New Page 1

Shoot for the moon. Even if you miss, you'll land among stars! While this is true for many cases, this is not what you would want to do when you are planning your finances. There is a chance that you might not land among the stars; improper planning could land you back to square one or worse in a ruined financial state.

Before you start investing, you need to define your goal for which you are saving for. This is because to save for the future, you are cutting back on your spending now. This sacrifice must not be in vain; you need to get an appropriate reward for this sacrifice. Goal-based investing is just what would help you.

Type of goals

No matter how different and unique your goals are, you are bound to find the correct financial instrument. However, the first step of successful planning is to set the goal. What are the common goals that many of you could relate to?

  • Build sufficient amount for retirement

  • Buy a vacation home/Save a down payment for a home

  • Create an income stream after retirement

  • Start a new business

  • Pay for your wedding

  • Save for your children’s education/marriage

  • Take a special vacation

  • All of the above

Timeline to achieve the goal

Setting a goal is important as they help you define the timeline in which you need to achieve the goals. For example, paying for your vacation, creating a constant income stream post-retirement, or your wedding could be a short-term goal while planning for your retirement could be a long-term goal.

Risk Tolerance

Your goals will also help you determine your risk tolerance. Your age will also play a factor in determining your risk tolerance. If you are in early stages of your career, you can afford to take more risks as you might not have been married. However, if you are a businessman and have a family dependent on you, you might not want to be too adventurous.

Liquidity Requirements

Your investment goals will also determine your liquidity requirements. If you are investing post having an emergency fund, you might want to invest in an investment option that would not provide you instant liquidity such as real estate. However, if you do not have an emergency fund, you might want to invest in mutual funds to gain while having the option of quick liquidity.

4 Tips to set your goals

Setting appropriate goals can be difficult. Consider the following tips before setting up your goals.

1. Know why you are investing.

  • You can set the right goals if you can point to a specific reason for investing.

  • This will also provide you with a way to stay motivated.

2. Be realistic:

  • Do not grandly proclaim that you can invest Rs.5000 while you aren’t even sure of the groceries.

  • Consider your financial situation and set achievable goals.

3. Break it down:

  • Chip down your investment goals into easy milestones.

  • Start out small and increase gradually.

4. Start simple:

  • If you are unsure whether you can really stick to the plan, start with a simple plan.

  • Also, begin with simple SIPs and do not assume that you know everything about equities.

To sum it up

Having an aim in life is important. However, having a goal while financial planning is furthermore important. If you follow the above-mentioned tips, you could better align your goals with your needs.