Goal based investing #1 – What experts will tell you

The space of personal finance is replete with experts. There are of course the professionals in the field but there are many others too. Most of them will tell you the same strategy for goal based investing. I am a strong believer, in understanding the basics of some method, even if I do not agree with the same. Yes, you heard it right – I think the normal way of investing for goals is a wrong one. I will explain my stand in a later post, but in this one let me explain the popular method.

A summary of the normal goal based investing method goes like this. For people interested in more details of the process, go back to some of my earlier posts on Financial planning where this is explained with a detailed example.

  • Identify your important goals in life. While it will vary from person to person, some common goals for Indians are Retirement corpus, children’s education / marriage, buying a car / home etc.
  • Put a current cost to the goal and the time frame in which you want to achieve the same.
  • Project the future cost of the goal based on some logical inflation figure, for example take 12 % for Education.
  • Based on the future cost and the asset class that you will invest in, you can estimate the returns and finally land up with annual and monthly savings required to achieve the goal.
  • Repeat this for every other goal that you have.
  • Consolidate all of this information to have separate portfolio for each goal, to decide on how much to invest in equity and in debt for each goal.
  • Invest in the products decided for each goal and track the same over the years.
  • Review and decide on changes needed for asset allocation in each portfolio at least once a year, maybe more.

The example of a real life case that I had described in great detail in my earlier post will give you a complete lowdown on how to use the method. Will this work in real life? Yes, it will if you have adequate resources to fund your goals and a lot of time to track multiple portfolios and products. Is it simple to do conceptually or practically? No way!!

Most financial planners and other people who advise you will tell you to do it this way. Is it conceivable that all of them are wrong? Yes, majority opinion is useless if it is fundamentally wrong.

So what then is an alternative way? Before we get to that, we need to understand why the common method is a poor one for most of us. I will cover this in the next post.


2 thoughts on “Goal based investing #1 – What experts will tell you

  1. Hi Raj, you have raised an interesting question and am eagerly looking forward to the next post for the answer. I really like the way you are articulating the need for FP and the way to go about it. Thanks.



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