Today, more and more people are investing with the basic reason of wanting to grow their hard-earned money. What most do not realize is the fact that there is more to investing than just getting high returns and outperforming the benchmark. Ask yourself, what will you be using the returns for?
You may find yourself daydreaming of situations that make you feel good and secure. Perhaps driving your first luxury car? Or putting on your child's medal during graduation? Or enjoying your retired life in a nice house by the beach? Then, you snap back to reality. You find yourself overwhelmed, thinking “Is that possible?” With the proper approach to investing, it is.
Investing can actually be a tool to help you live the life you want - to help you achieve your life goals.
Goals-based investing is an approach that encourages an investor to invest not based on returns, but based on the goals that he or she wants to achieve. The set goals serve as the "maturity date" of your investment. It helps you stay disciplined in setting aside money and sticking to your investment horizon. This approach to investing will help you, as an investor; withstand all market conditions and volatility.
Let me run you through these simple steps.
1. Identify your goals.
Life goals may vary depending on one's life stage. If you are a young professional, a common goal is your first car, or the latest gadget. If you are a parent, you may be thinking of setting aside funds for your children's education. Or you may want to start building your retirement fund. You may have more than one goal in mind and that is okay.
Prioritize the goals that you’ve listed. First, identify which of those do you really need, and which are just “nice-to-haves” or your wants. Then, set your timeline for each. Which one do you need to achieve in a year's time, in 3 years and in more than 5 years - in other words, short term, medium term and long term.
3. Know your starting point.
It's also important to know where you are right now to help you plan and achieve your life goals. You can do a financial assessment by simply asking yourself if you’ve initially set aside funds for your goals. Other financial checks that you can do are to compute for your Net Worth and Cash Flow, and to ensure that you have an Emergency Fund.
4. Craft a game plan.
How much do you need for that goal and how much do you need to regularly set aside to reach your target amount? We need a game plan or an Investment Plan to get there. To create this, we look into four things – target amount, risk profile, investment options, and recommended asset allocation.
What differentiates this approach is that you will have different investment portfolios for different goals. This allows you to diversify, manage risk, and maximize returns independently for each goal. Remember, each goal will have different investment horizons, so you will have various strategies or asset allocations for each of your goals.
Investing for your life goals does not stop once you’ve opened an account and have invested a lump sum amount. You don't need to have a big lump sum amount to start. Remember, the better practice is to invest regularly and as early as possible. As you invest consistently throughout your time horizon, you also review regularly and rebalance as needed to ensure that you are right on track to achieving your life goals.
BPI Asset Management's Investment Counselors and Investment Specialists can help you craft a personalized Investment Plan and assist you with executing it to reach your life goals. It's about time we change the way we think about investing. Allow us to help you reach your life goals!
by Kristine Cuaresma
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