Goal based investing #10 – Putting it all together

I think the series would have enabled everyone to look at goal based planning and investing in a holistic manner. It will probably be a good idea to do a wrap-up post to summarize all the salient aspects that has been discussed out here.

You will first need to understand your life’s goals in terms of the significant events and milestones that you want to achieve in it. This could be anything from getting married, having children, planning a business of your own, vacations in India and abroad, buying a house or a car, being financially independent by the age of 45 etc. Be sure to put all the things that are important to you, at this stage it is not really important to worry about affordability.

You will then need to establish a timeline for all your goals along with the future values of these. As I have explained it in a fair degree of detail I will not go through the process in this summary. Basically your first goal can be a Two wheeler costing 75000 in 2 years, a car costing 8 lacs in 7 years etc. This timeline should really be a financial representation of all your life goals that you have identified in the first exercise.

Your investment plan is the financial mechanism to create a framework for fulfilling your goals. In simple words you need the amount of money to be available when the time for the goal comes. For this you need to invest in financial instruments that can be redeemed for realizing this needed amount. So, you keep investing money in the various instruments and sell some of these when your goal is at hand.

You need not map each of your goals to a separate portfolio. Though all experts will tell you that you should ideally have a one to one mapping between your goals and portfolio, this is completely unnecessary and even financially harmful. You really need to have a single investment plan and map all of your goals to that plan. You keep putting money into that plan and you take out money when you need to fulfill any of your goals.

Your investment plan really needs only 2 asset classes debt and equity.

You must have 3 portfolios for Debt, Mutual funds and Stocks.  The Debt portfolio gives you a good foundation for your plan, takes advantage of long term compounding and ensures that you do not need to redeem your equity based assets at the wrong time. The Mutual Fund portfolio gives you a low cost option to invest in equity, is relatively less risky and instills a long term discipline for investment. The stock portfolio is for giving you the differential return boost that you need in your investment plan.

You need to have simple strategies for asset allocation and re-balancing. The easiest way will be to only invest in PF and maximize the PPF accounts for self and spouse, for your debt portfolio. Build the MF portfolio through SIP over a period of years. All other surplus can go towards buying stocks. In general you do not need to do anything else. If the market runs up a lot, suspend buying stocks and in the extreme cases stop your SIPs temporarily. The cash collected can be deployed to buy more of MF and stocks when the time is right.

You need to have flexible strategy for redeeming your assets for goal fulfillment. Ideally, use equity for redemption. My preference is stocks first and then MF. However, if the market is going through a real bad patch redeem from your debt portfolio. You can replenish it later when the markets are doing better by transferring some amount from equity to debt.

In the future posts I will write about constructing a stock and MF portfolio.

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2 thoughts on “Goal based investing #10 – Putting it all together

  1. Thanks for your posts.
    I noticed you mentioned several times about “withdrawing from equities at a wrong time”

    How does you determine what is the wrong time.
    PE based? overall market sentiment? Macro? earnings..
    please share your guidelines in understanding the wrong time in markets.


    • As long as your equity investments are performing in line with your return expectations, you can redeem them to meet a goal. If your expectation is 12 % and they are only giving 9 % now, use Debt redemption approach.


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