The market has been titillating in a range making it difficult for investors to decide their next move. This has caused many to shift their investments from equities to debt and vice versa. The resolve to stay invested often takes a backseat in light of continued market movements. The intent to remain aggressive in investments is common during the bull run. When the market is bearish, many investors question the validity of these investment options. They forget the basic rule of investment, i.e., to stay invested irrespective of which way the market sways.
In a bear market, every investor doubts his understanding of how investments work. They realize how they had overestimated their tolerance for risk. This explains why many people discontinue their investments after a period. This also explains why many of them fail to meet their financial goals.
Why set a financial goal?
Linking investments with financial goals becomes all the more important with time. The fragility of life exhorts us to save and invest more. Apart, the right choice of investment opportunities becomes important to attain the much-needed corpus. Goal-based financial planning lends investors the perspective and vision regarding how much they must invest and how they must invest their money depending on their risk appetite. The desire for a higher corpus requires one to start investing early and stay invested for at least two decades. Apart, the investments must be in market-linked instruments that earn as high as 12 per cent, thus, beating inflation while enabling corpus creation.
There is another aspect to setting financial goals before investing your money. It is the understanding that no matter how you anticipate the market to move, the inherent volatility will always cause the market to move up and down. Also, that the market may be in a prolonged bearish phase before breaking the resistance barrier to gallop to higher levels is a fact that helps many investors to stay put with their investments.
The choice of investments is also as per financial goals, which means that those not looking for a nominal corpus amount post-retirement can opt for debt funds and fixed-income plans. Those who want to hedge their investments against the effect of inflation can put some of their money in gold by investing in sovereign gold bonds (SGBs), gold exchange-traded funds (ETFs) and gold mutual funds. Some also put their earnings in silver ETFs to benefit from the volatility in silver prices.
Deciding which market capitalization, you want to stick to again depends on your financial goals. For example, those with an extremely high-risk appetite and willingness to earn unprecedented returns park their money in small-cap funds. The mid-cap funds are comparatively less risky though they also earn good enough returns to help create wealth. The large-cap funds that invest mostly in blue chips involve much lesser risk compared to most other equity options and, therefore, need more time to reach your financial goals.
There is another time-tested way to earn good returns. This involves putting money in index plans such as the Nifty100 index funds or Nifty50 index funds or the Sensex funds that track the underlying indices to earn returns corresponding to market movements. Numbers reveal that if you had invested in NIFTY in September 2021, you would have still outperformed the entire Cryptoverse, all US equity indices and most of the world market instruments. Index funds continue to be underrated with very few personal finance experts explaining how simply tracking the indices can help you earn a truckload of money.
Different financial goals
Different life phases require us to modify or change our goals, thus, requiring constant goal setting. For example, saving enough for marriage, a child’s schooling, higher education and marriage of children, buying a new home, etc. are different financial goals that we must pay attention to while investing our money. This also explains the need to invest with both a short-term and long-term outlook.
Perceiving goals is the first step to deciding on investments. Also, yearly bonuses, appraisals and sudden windfalls in money help us to further investments on the go. To ensure continued investments, make sure to avoid incurring unwanted debt and build on a second source of income that you can rely on in case of sudden job loss.
To achieve your financial goals, remember not to be too extensive with your portfolio. A vast portfolio containing too many types of instruments does no good. Figure out what works for you before you put in your money. If something does not work for you, do not hesitate to pull out your money to avoid unwanted losses.