The evolution of investment vehicles has been very exciting.
In my early days of advising and helping people invest in varied instruments and asset classes, the favourites used to be FDs, RDs, Real estate, Insurance, Postal savings, Direct equity. Mutual funds/Systematic investment plans (SIP) got a look into the overall portfolio very rarely…
Well, things have changed and how!! Today, mutual funds and more specifically SIPs have become accepted as one of the best vehicles to get into, to invest your savings. Well deservedly so. SIPs promote forced and regular savings whilst promising higher returns from your hard-earned money.
Thus we all have taken the most important step by starting SIPs in our portfolios. Kudos for that, Congrats! The bigger question is ‘is it enough??’ Well please do take this with a pinch of salt…the answer is a big NO!!
My friend Mr. Happy is ready with his loving family to start their much-anticipated 10-day road trip. He has kept all resources ready – a new SUV, all safety equipment, all essentials, and other requirements for the entire trip, some funds for the trip have been collected in his bank account. Things are super exciting. The happy wife and happiest kids and Mr. Happy board the car and a sudden realisation hit him with a THUD in his mind…!!
Well, they haven’t planned where to go? What will be the route? Which places will they cover? Which places would the kids like? What’s Mrs. Happy’s dream destination? What will be the total cost?
This looks shocking and impractical right? Place yourself in Mr. Happy’s shoes, would you have done this mistake? No, Never right…?. You would have planned this much better…
Well, I agree with you totally – 100 %… What I don’t agree with many of you is this – I see many investors who invest their hard-earned money in SIP and not assigning it to any of their life’s goals, doing the same mistake. Yes, it’s as serious a mistake as Mr. Happy makes with his long-awaited family road trip…
Setting goals that are set with a set time and amount is of paramount importance when it comes to your financial planning. It should necessarily happen before you start investing. A couple of examples would be – I would require Rs.10 Lakhs (in today’s value) for my first child’s post-graduation, 11 years from today, or I would require Rs.5 Lakhs for my family trip to Dubai, 5 years from today.
These need to be set, small calculations need to be done by adding inflation to the goal in terms of the year left and how much it would cost at that time and post that we can quite easily arrive at how much I would need to save monthly to reach that goal…
So the solution is as simple as –
Goal – I would require Rs.10 Lakhs for my child’s PG, 11 yrs from today
Solution- I am doing a SIP of Rs.11,000 per month in XYZ mutual fund to reach this goal. This SIP will get me there.
(10 Lakhs – will be around 30 Lakhs with an assumed rate of inflation of 10% p.a. on education costs, and Rs.11,000 invested every month for the next 11 years, with an assumed investment return of 12 % p.a. will assure you reach your goal)
Clarity always gives peace of mind. This is what we are all after. Link all your SIPs and other investments with Goals; it’s not that difficult and mandatory as you see. Taking expert advice in case of any difficulty can also be considered.
Let’s give more power to our investments by understanding each investment destination, and take full care of it on its way to your dream destination.
Happy Goal-based Investing!!
Author: Nirmal Jain | Nirmal Jain is the Co-Founder at HappyWise Financial Services. He has helped over 100 Families over the last 15 years of his services in the Financial Planning Sector. He has been a mentor to several people to help them better understand investments, stocks, mutual funds, financial planning, personal finance and above all his favorite term “The Power Of Compounding!”.