Right from buying a new laptop and planning a foreign trip to purchasing a house and living a comfy post-retired life, we all have numerous things we want to achieve in life. All these dreams require different amounts of money to come true. A general savings habit might result in a shortfall if your savings are not anchored to particular goals. That’s why a goal-based investing approach works best. In this article, we cover the steps you can use to reach your financial goals and transform your dreams into reality. 

• Goal-based investing hinges on clear, specific, and time-bound goals.
• The time frame of your goal and your risk appetite dictates asset allocation and instrument selection.
• Reviewing and rebalancing your portfolio is essential to maintain alignment with your goals and risk tolerance. 

A goal-based investing approach estimates the future value of a goal and uses the same as a benchmark for your investing strategy. By factoring in your age, risk profile, financial standing, and investment horizon, you can tailor a customised approach to investing. Here’s a list of steps that will help you reach your financial goals with ease:

Step 1: Identify your specific goals

If you’re wondering how to reach your financial goals, start by first identifying them. Setting clear, definite, and time-bound goals helps you create a detailed financial plan for each of your milestones. Once you have your goals listed, you can create a prioritised listing, estimate the target amount for each goal, and understand the time required to achieve them.

Step 2: Categorise goals into buckets

The second step to reach your financial goals is to categorise them into different time-bound buckets. Short-term goals like buying a new iPhone or planning a Europe tour are goals due anywhere between a few months to 2 years. Alternatively, long-term goals like retirement carry a time horizon of 10 years or more. In-between these two extremes lie medium-term goals that have a timeframe of around 3-8 years. Goals like buying a house and starting a business venture are common medium-term goals.

Step 3: Focus on asset allocation

Next on the list of steps to reach your financial goals is asset allocation. Once you have identified your goals and plotted their timeframes, it’s time to focus on the right asset mix. Asset allocation is the process of choosing securities to invest in as per your goals, risk appetite, and investment timeframe. Depending on these subjective factors, you can choose from a range of assets like equity, debt, hybrid instruments, and gold. Remember, diversification is the key to optimal risk-balanced returns. Therefore, it’s prudent to avoid drafting an investment portfolio with complete asset concentration. Ideally, you should allocate your funds to multiple asset classes to ensure ample hedging during volatile periods.

Step 4: Select the right investment

Once you’ve settled on an optimal asset allocation mix, it’s time to pick the right investments. This step to reaching your financial goals requires selecting instruments after evaluating the risk-return trade-off. The right investment instrument will vary for every investor depending on their goals, risk tolerance, and time horizon of investment. For instance, let’s say you are a 25-year-old investor with a retirement planning goal. Since you are a young investor with around 35 years left until retirement, you can focus on return maximisation and wealth creation and tolerate a higher risk exposure. If you have the requisite market knowledge, you can consider direct equity investments with individual stock selection. Alternatively, you can invest in equities through mutual funds that are managed by professional fund managers and offer the in-built benefit of diversification. Similarly, if you have a short-to-medium-term goal, like saving up for the down payment on a house and require the investment in 2-3 years, you can consider debt mutual funds and other fixed-income securities like FDs.

Review and rebalance your portfolio

The last step to reach your financial goal is to review and rebalance your portfolio as and when needed. Regularly reviewing your portfolio helps you track the performance of your investments and make revisions accordingly. Moreover, your risk profile can change over time. It’s important that your portfolio reflects your current risk capacity to minimise chances of losses. For instance, it’s prudent to invest in equity funds for retirement in the early years. However, as you edge closer to retirement, you should switch to debt funds to preserve the gains made from equity investments and ensure capital protection. Similarly, the asset allocation of your portfolio may change due to market upswings. At such instances, it’s crucial to rebalance your portfolio to keep your investments aligned with your goals and risk capacity. 

While reaching your financial goals may seem like an uphill battle at first, you can simplify the terrain with these handy tips. Following these steps to reach your financial goals helps you fulfil your goals without feeling overwhelmed. Simply remember that your goals underpin your entire investment strategy—right from investment horizon and asset allocation to selecting the right instruments and rebalancing your portfolio.

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