We all have our respective financial goals. However, keeping a single plan or portfolio may not be enough to attain all. “One size fits all” is a very common approach by people with very little clarity regarding financial planning. A common-sense approach to investing underscores how you must invest in different investment options instead of relying on only one portfolio to serve your requirements.
A portfolio for each goal
All your financial goals may not be imminent. Some may be planned for a distant future. This explains why we must have different portfolios dedicated to our different goals in life. For example, to meet an immediate need for funds, we may park our money in bank deposits and liquid funds that we can redeem as and when needed. Similarly, those with a long-term vision may consider parking their earnings in stocks and mutual funds. However, this involves a lot of risks too. The risk rewards factor is eased out in the long run as you invest in small quantities over a period synonymous with lows and highs in the stock market.
Also, those with a long-term perspective regarding their financial goals can invest in small amounts via systematic instalment plans (SIPs) over the period. This way, they will also have a clear perspective regarding their goals and if they would like to invest in alternative investment options based on their complexities and the returns involved.
The idea of planning for short term, medium-term and long-term investments depends on the purpose for which you are looking to save and invest. For example, planning to make a down payment for a house in the near future amounts to short-term financial planning. Similarly, planning for children’s education requires adequate planning for the short term while retirement planning involves taking a detailed note of your finances over a longer period ranging between 30 and 40 years.
Deciding asset allocations based on financial goals
Considering how planning for each of these involves a different time frame and priorities, it is important that financial portfolios are equally distinct. Planning for all of them using a uniform asset allocation strategy will only spell doom.
To start with, when you plan for a short-term goal, ensure to include more debt than equities in your portfolio. This is different in a long-term portfolio that has more equities in it compared to bank deposits and debt funds. A hybrid fund or a balanced portfolio containing an equal proportion of both debt and equities is ideally suited to planning medium-term goals.
Not many realize how planning separate portfolios for different goals ensures the right asset allocation across all sectors. Besides, it is easy to assess the performance of different portfolios if designed and decided differently as per fiscal requirements in the future. Evaluating a common investment pool can be tiring.
Decoding the right investment approach
It is a great feeling to be free of all unwanted debt and enjoy a financially secure future. Keeping separate goals and distinct portfolios translate to more clarity regarding financial outcomes. Those with a clear understanding of how and where their money is invested feel more in control of their finances, thus, explaining the need to plan different financial portfolios to reach multiple goals.