How Goal-Based Investing can help you to reach your Life Goals
We all have dreams and aspirations, and we need financial foundations to support our aspirations. The responsibility of creating these financial foundations also lies with us.
Let me begin with my own example. I started working at the age of twenty-one after completing my Engineering, and after a year I got married. Those days Engineering + MBA was a coveted qualification. I wanted to do an MBA after marriage but the costs were prohibitive, and beyond my affordability. I had to wait for more than a decade to accumulate sufficient corpus before I could sponsor my MBA abroad.
Now, when I look back, I realize how proper financial planning could have helped me to achieve my Life goals on time. That is the advice I would give my daughter as well, who will be entering the workforce in six months’ time.
What are your Life Goals?
At any stage of your life, you will have dreams and aspirations. While some dreams may be abstract and reside as mere wishes in your mind, some dreams stir you enough to make you work towards accomplishing them. You clearly aspire for those and feel motivated to plan for achieving those. These dreams can then turn into your Life goals.
“A dream becomes a goal when action is taken toward its achievement.” ~ Bo Bennett
A life goal could be to have a destination wedding, or a dream house, or to save for a start-up, to sponsor your own education or your children’s higher education, wealth creation, to plan for retirement or to create an emergency fund.
How to plan for achieving your Life goals?
“Setting goals is the first step in turning invisible into the visible.” ~ Tony Robbins
Once you have identified what your Lifegoals are, you need to assess the amount of time you have in hand to reach the goals. These Life goals can be short-term, mid-term or long-term, depending on the time frame, within which you plan to achieve the goals.
The next thing to do is to find out the cost of achieving the goal today. Say, if you wish to go on a polar expedition and Antarctic cruise, you need to know what it would cost you to travel to Antarctica today. If you plan to do it in the next 2 years, you add a reasonable amount of inflation to the cost and work out how much the Antarctic cruise would cost in two-years’ time.
After you know the cost of meeting the goal in the given time, you have to assess out how much you need to set aside from your earnings to save for the goal. Though it sounds simple, yet it takes some amount of thinking to work out a realistically feasible figure.
With the help of a good financial advisor, you can select a suitable scheme that allows you to accumulate as well as grow your savings to meet your life goals while matching your risk profile.
What is Goal-Based Investing?
Investing in a planned manner to achieve your #LIFEGOALS is called Goal-Based Investing. Each individual or broadly speaking, each segment of the population may have different sets of #LifeGoals to accomplish, for which they need to invest in a systematic manner.
India has a youthful population, whose dreams and aspirations are changing with the changing times. The young in urban India, have high expectations from life and are setting high targets to achieve that perfect life. Smart front –foot financial decisions, augur well with this segment of Indian population
At the same time, the average lifespan of people is also increasing. So, they need resources to maintain their standard of living and quality lifestyle for a longer period of time.
Planned investments made with the objective to meet #LifeGoals can give the most effective results.
Bajaj Allianz Meetup on Goal-Based Investing
At a meetup organized by Bajaj Allianz Life Insurance on the 8th of Jan 2018 in Mumbai, I got a chance to know more about the concept of Goal-Based Investing.
The session started with a talk by actor and comedian Suresh Menon. It was a hilarious to hear him talk about his Life and Life Goals. In his typical Bollywood comic style, he shared that for quite some time, his only goal in Life was to get work.
But even after he started earning, he remained clueless about saving and investing. When someone suggested that he gets a Life Insurance Cover, he was not enthused with the idea that he would have to die while his policy is still in force to get any returns. Then, someone told him about ULIP.
“I am happy to have discovered the ULIP scheme, which will give me insurance cover in case of death and investment returns if I continue to live,” he quipped.
“Since then, my mantra is #InvestBefikar and #Jiyobfikar.”
Point taken. ULIP plays a dual role in Investment and Insurance.
The other highlight of the session was a Dart Game to demonstrate the importance of Goal-based investing.
On a pinwheel, Life Goals were drawn, from which the participants were asked to choose a goal. A person would rotate the wheel, and each participant had to hit the goal with a dart. As the wheel was spinning, many of the participants missed hitting the goals. Some started making multiple attempts at throwing the dart and hit the goals.
The simple game had a big lesson for all. Time keeps moving. The chance of hitting your goals are higher when you throw the dart right on time and at the right angle.
Likewise, you increase the probability of reaching your Life Goals when you start investing on time and in the right scheme.
The last part of the session was the most informative one, in which Bajaj Allianz Life Insurance MD and CEO Mr Tarun Chugh along with the Chief Investment Officer (CIO) Mr Sampath Reddy explained how Goal-Based Investing can be used to meet Life Goals and busted some of the myths around ULIPs, which I shall elaborate in the following section.
How Goal-Based Investing can be used meet your Lifegoals
Goal-Based Investing requires the investment approach to suit the individual’s Life Goals. It takes into account the priority of goals, time horizons and risks.
Different investment approaches may be needed to fulfil different life goals. While one may take an aggressive approach to a certain goal, one may choose to be very conservative in the investment approach for a different goal.
Short term goals are addressed differently than mid-term goals or long-term goals. Safety is a prime consideration for a goal that needs to be met in a short time frame (say making a down payment for buying a car in a years’ time). Debt as an asset would fit the goal better for such short-term goals.
ULIPs are great investment options for Long-term Life Goals (over 10 – 20 years). These goals can be planning for your children’s higher education or marriage, down payment for buying a property or planning for your retirement.
Myths and facts surrounding ULIPs
Before we delve into this, you may like to see here How does a ULIP Plan work
A ULIP is a flexible and transparent investment instrument which offer the dual benefits of investment and protection. One part of the premium paid for a ULIP goes towards coverage of risk to life and the other gets invested in generating returns.
Monthly investments in ULIP can be made through the SIP mode. Any additional lump sum investible income can also be added as top-ups to the ULIP policy.
ULIPs have different fund options with varying asset allocations between equity and debt. Fund asset allocation can be tailored to your life goals. Mr Reddy explained that a major advantage of ULIP is that irrespective of the holding period, switching between fund options is exempt from tax.
Overall, ULIPs provide life cover, give tax benefits at a low cost. Due to the long-term investment outlook, ULIPS protect from short-term volatility and offer good returns over a longer time horizon. ULIPs provide good means for long-term wealth creation and achieving your long-term #LifeGoals.
Finally, I would like to reiterate that Goal-based investing is a smarter way to meet your Life Goals over chasing returns. Though the best time to start financial planning is early in your career. it is never too late to consider investing in a good scheme.
Watch this space for more information about a Soon To Be Launched product by Bajaj Allianz Life that will help you to achieve your #LifeGoals.
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