If you don’t have any investment goals, why invest at all? If investing is something you want to do, then there is obviously a reason for it – you want to retire, you want to have the money for your children’s education or you want to afford the house of your dreams.
These goals are great, but to build a suitable investment portfolio you need to be more specific. Detailed goals will help you choose appropriate investment options and build a portfolio that is right for you. That’s why setting investment goals is so important.
Setting Investment Goals – The Details
You can begin the process of setting investment goals by jotting down some rough ideas of the more expensive things you want to accomplish or buy in your lifetime:
· I want to retire by age 50
· I want to buy my dream house when I’m 30-35
· I want to be able to pay at least half of my child’s college tuition
· I want to own an Audi R 8
The examples above are big, long-term goals – excellent reasons for investing your money. After writing them down, begin working on the details. Figure out the following for each goal:
· Deadline: when you expect to need the money
· Cost: the total amount you need to reach each goal. This can be the sum of all periodic payments, if that’s what you goal calls for (such as the case with college tuition)
· Already Saved: the amount already saved for each goal, if any
· Duration: length of the goal if it requires payments over time
Be as specific and accurate as possible. It’s OK if you can’t come up with exact figures – use your best estimates. It’s better to start working toward something, even if you are a little off, than to wait until you can better predict the future.
Investment Goal Example
Here is what one of your investment goals may look like:
· Goal: to pay half of my child’s college tuition
· Deadline: around August, 2023
· Cost: estimated at Rs. 32,00,000
· Already Saved: Rs.5,00,000
· Duration: will be paying college tuition over the course of 5 years
And that’s it! After setting investment goals, write them down so you can review and revise them later. Circumstances do change, and it’s important to update your investment goals accordingly. Once you are done setting investment goals, you are ready to move on to the next step – determining your risk tolerance. Read about it in the next installment of our Portfolio Planning Basics series.
