MANY people feel as if they’re adrift in the world.
They work hard, but they don’t seem to get anywhere worthwhile. A key reason that they feel this way is that they haven’t spent enough time thinking about what they want from life, and haven’t set themselves formal goals.
After all, would you set out on a major journey with no real idea of your destination? Probably not! So the need to set your personal goals in life. But you would agree with me unanimously that our ‘personal goals’ differ from one person to another. Depending on our priorities, each person sets set different personal goals in life.
The purpose of investing for one person could be to accumulate enough money to enable their children to go abroad for higher studies, whereas for some other person it may be just to save enough to cater for the marriage of one’s children.
On the other hand, somebody wants to retire early, and that becomes the purpose of this person’s investment pursuit. Another person wants to save enough money to buy a house on attaining a certain age, while for someone the end goal could be to buy a car, and these are some examples of different purposes of investing money.
Further these permutations & combinations clearly demonstrating as to how our personal goals differ from one person to another. Some time back I met one gentleman who shared with me that whenever he has some surplus money, the same is utilized to buy an insurance policy [a new one or an additional policy] either for himself or for some of his family members.
This person treats insurance products similar to any other savings or investment product. While it is almost necessary for any human being to purchase an insurance policy, however over-exposure of any magnitude is not wise, and thus not recommended.
One must understand the basic difference between an insurance policy and a typical investment instrument. The fundamental principal of buying an insurance policy is to hedge against unforeseen risks of any nature, while the basic purpose of investing is nothing but to achieve growth of your money, whether in the form of capital appreciation or dividend/ interest.
Thus there is a need to align your investment strategy to the personal goals which you have set up for yourself. In this direction, the first thing one must do is to prepare his/her financial goals. The set goals have to be in consonance with what one wants to accomplish in life.
In case there is a conflict between one’s financial goals as set, and what someone wants to accomplish in life, then for sure the end result will not be desirable. Moreover, while preparing/ setting financial goals, one must be extra vigilant to ensure that the corresponding goals as set are ‘SMART’.
This implies that the set financial goals must be – Specific, Measurable, Attainable, Relevant and Time-bound. So please don’t end up setting vague goals for yourself, instead ensure that the set goals are SMART as explained.
A goal lacking on any of the SMART parameters will fail in the long run as it would lack the necessary impetus which is required to fulfill the desired objectives for a human being.
Once we have succeeded in framing financial goals which are ‘SMART’, the next logical step is to break down these goals into short-term (i.e. less than 1 year), medium-term (i.e. 1 to 3 years) and long-term goals (i.e. 5 years or above).
This is imperative in order to set one’s priorities right and also to devise the corresponding ‘Action Plans’ as would be required to achieve the set financial goals within a fixed time frame. Without doing so, you can’t determine/identify which investment product will fulfill the end objective.
If one’s short term goal is to save enough money so that one can take his/her family on a holiday tour during Christmas, then the most suitable investment product for this person would be a simple short term fixed income security.
To accomplish this goal if one decides to invest into an equity instrument [where you cannot predict the end value]; it may not be wise to go this way and thus not recommended.
On the other hand, to achieve one’s long-term financial goals – such as saving enough money to buy a house or to have sufficient income during post retirement days, the chosen investment product must have a similar objective to achieve.
If one is looking for a risk free investment then the best choice is to park money into fixed income securities like fixed deposit with a bank or invest into a Treasury or Corporate bond. Conversely, if one is ready to take the extra risk on a long term basis, then investment into equities is the best bet which over a period of time is expected to outperform other investment instruments.
Don’t invest your hard earned money into a particular instrument just because others are doing so. Study the underlying objectives of the instrument one is considering for investment and match the same with your corresponding financial goals as set.
If investment objectives of the instrument are in conflict with the set financial goals, you must never put your money into it - howsoever lucrative it may appear on the face of it. So always remember that it is important to align your investments with the personal goal which you have set for yourself to avoid any disappointments in future.