Investing to meet your goals: A few ideas to ensure you’re always on track

Here are a few fundamental changes you may need to make in your investment approach to ensure you meet your financial goals in time.

Many people regularly invest a good amount of money, yet they fail to hit their wealth goals on time. This happens mainly because the investors don’t adequately review their goal requirements according to the changes in their lives. That’s why it’s critical not just to identify your goals and start the required investments as early in your career as possible but also to implement the required changes in your investment plans from time to time.

Here are a few fundamental changes you may need to make in your investment approach to ensure you meet your financial goals in time.

Review your financial goals

Your financial goals may change over a period of time. For example, you may have identified a goal to buy a home worth Rs 50 lakh after 10 years. But after five years, you may realise this target amount is inadequate owing to the increase in real estate prices and you may now need to prepare for a Rs 75 lakh property in five years to meet your requirements. To avoid falling short of your goal, you will have to change your investment approach in sync with your updated goal. Identifying a goal at the start can help you find the right investment direction; reviewing it after a few years can help you ensure you are on the right path.

Re-evaluate your risk appetite

Your risk appetite may change with ageing, changes in your income and family obligations among other factors. When you start working toward your wealth goals, you may not have children and a lot of financial responsibilities. Over a period, your responsibilities may grow, and, thus, your risk appetite may fall simultaneously. With a high-risk appetite, you may be exposed to high-risk investments, but with a decrease in your risk appetite, you may need to switch your investments to low-risk instruments. When the return on investment falls in your portfolio due to higher exposure to low-risk instruments, you may require an increase in investment amount to meet your wealth goal on time.

Optimally diversify your portfolio

Portfolio diversification can help you lower the risk when you invest towards achieving your wealth goals. However, over-diversification can reduce the overall returns, whereas under-diversification may expose your portfolio to a higher level of risk. So, it’s crucial to maintain an adequate diversification level (by investing across multiple asset classes and products as required) which may provide you with a return in sync with your wealth goals and your existing risk appetite.

Rebalance your portfolio

You should also aim to maintain a balance between your investment portfolio and your financial goals at all times. As time passes, your portfolio may get skewed towards a particular asset class which may not complement your risk appetite at that time.

For example, let’s suppose you decided to maintain a debt to equity investment balance of 20:80 in sync with your risk appetite at the beginning of your investment journey. After a few years, the equity portion in your portfolio grew and the debt-equity ratio changed to 10:90. So, you may now want to rebalance your portfolio by investing more into debt or switching funds from equity to debt to reinstate the ratio of 20:80.

Invest surplus savings lying idle

Many often keep idle funds in different bank accounts or as cash at home. If invested smartly, such idle funds can provide an attractive return and help you in greater wealth creation. As such, you may opt for a sweep-in FD facility linked to your bank account to avoid losing interest in your idle savings. You can also choose to invest surplus savings, i.e. over and above an adequate emergency fund, in other investment instruments in line with your returns expectations, risk appetite and liquidity requirements.

Stop investing based on hearsay

There’s no dearth of investors who make drastic investment decisions without putting much thought purely based on hearsay or rumours. Such careless investments could majorly hurt your wealth goals. As such, always ensure your investment decisions are based on facts and end-to-end research. You should also aim to increase your knowledge about investments and research methodologies by reading books and articles from renowned experts, watching videos on credible platforms and enrolling for online courses. If you require help, ensure you only consult SEBI-registered neutral investment advisors.

Look beyond tax-saving investments

While working towards your wealth goals, you must distinguish between your insurance goals, wealth goals and tax-saving goals. Many invest in products like traditional insurance policies and endowment plans that aim to tick all the three boxes, but their insurance cover is often inadequate and investment returns insufficient to meet their wealth goals. As such, you must aim to maximise the tax-deduction benefits at your disposal by purchasing eligible insurance and investment products, but also look beyond tax-saving goals to meet your wealth goals in time. The selection of these investment products should strictly be in line with your returns expectations and risk appetite and not just tax-deduction goals.

The author is the CEO at BankBazaar.com. Views expressed are that of the author.

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