Aligning your Investments to your Goals

Financial Goals define the required holding period for an investment. Holding periods help set the right asset allocation at the time of investing. By aligning investments to goals, you can maximize your returns based on your risk capacity.

Many of us start saving first and investing later once we’ve acquired some savings. We often don’t think much about the investment instruments we buy into - a friend’s suggestion, a hot tip on the news, or an easy tax-saving instrument. Our goals for the future and what we are saving towards rarely factors into our decision.

Aligning your investments to your goals is the first step towards getting your finances in order. While goals change as life progresses , defining your current goals can steer you in the right direction while choosing the asset classes to invest in. If you were to put all your savings towards your child’s school fees, in the equity markets, and the markets dip by 20% nearing the beginning of the school year, you could be in serious trouble. This could mean that volatility in riskier asset classes leads to an investment decreasing in value when you need the money. On the other hand, leaving your money for a long time in a bank account or Fixed Deposits reduces your purchasing power due to rising inflation. Knowing your goals before you invest, helps you maximize your returns based on your holding period. This holding period reflects how much risk you can take. 

Aligning your investments to your goals also means not investing towards all your goals in one go. You should prioritize investing towards goals where you can maximize your holding period. However, you may have to change this priority if there is a near term goal. Aligning your goals is about investing towards the right goal at the right time. 

How to get started?

Now that we know the cost of not aligning your goals and investments, how do we start?

Step 1: Defining your goals

Goals are big picture financial objectives you set for how you want to save and spend your money. They can be short term or long term goals, they could be recurring or one-time goals, they could even be big or small goals - like sending your kid to college or buying a home. Goals shape your future and influence the actions you take today - particularly saving for the future. You can always come back and change your goals in life, and create a financial plan that fits your needs of the time. However, realizing what your current priorities are for the future is the way to go.

To start, decide what matters to you in the next 5 years, 10 years and 30 years from now. This may be higher education, buying a home or even retirement. Build a timeline of when you want to accomplish your goal, and how much money you’ll need to accomplish them. Finally, make sure your goals are practical goals and not unachievable.

Step 2: Planning for the Rainy Days

Before planning toward your goals, it is crucial to protect yourself from unforeseen times of uncertainty. Every individual needs to have three things to protect their finances before beginning to invest: Insurance, a Contingency Fund, and an Emergency Fund.


You will have greater peace of mind if you know that you and your family are financially secure from unforeseen situations. Uncertainties in life could crop up at any moment, such as a crippling accident that leaves you unable to work. Insurance can protect you and your family against this. If you have dependents, a life insurance cover can protect your family in case of your passing. In addition to this, you and your family should also be covered by medical insurance, to ensure that your savings are not eroded by medical expenses, in case one of you is ill. While finding insurance for you and your family, make sure you don’t buy insurance-linked investments, as lenders may have primary claims over your insurance cover, in case of an unforeseen situation.

Contingency Fund

It is recommended to have a reserve of at least  6 months' income as your contingency fund that takes care of your essential expenses (like rent, EMI, groceries, etc.) in case of any unforeseen circumstances that impact your income. 

Emergency Fund

In case of an immediate emergency, you may not be able to avail of your contingency fund as it may take up to 5 business days to liquidate your funds. This is why having an emergency fund is important. This can be in the form of cash in the bank or a credit card. It is recommended that you have at least one month’s income in cash in addition to a credit card for emergencies. For example, if a hospital does not give you cashless hospitalization, you can pay for it with your credit card. By the time your credit card bill generates, you will have time to withdraw from your contingency credit card bill. However, ALWAYS pay your credit card bills in FULL. Credit card debt can compound and accrue very quickly, so make sure you pay your bills on time. Paying anything lesser incurs hefty interest (~40% per annum). If you do not have the money to pay it, nor any in contingency, you can consider getting a Personal Loan to pay it off. 

Step 3: Choosing investments by matching their holding period

Once you’ve got your necessities of insurance and contingency funds out of the way, you can start investing toward your goals. The timeline of your goals should be matched by an asset class that is suited for that holding period. For example, for short-term goals in the next 3-4 years, invest in asset classes with limited volatility in the short term - Fixed Deposits, highly Rated Debt Mutual Funds, etc. For long-term goals - more than 5 years into the future; you can be more focused on growth and invest in riskier investments like equity instruments. As you move closer to the date of your goal, you can start moving them into less volatile instruments to protect yourself against market volatility - that could make your investments depreciate when you need them the most.

Step 4: Start Investing

Once you segregate your investments by asset classes and holding period and craft your investments timeline, you can start investing. Before you start investing, be wary of the many financial frauds that are prevalent. Buying investments through a registered investment distributor is critical to protecting your savings. Also, ensure you are investing systematically and moving your investments to less volatile instruments closer to the end of the goal timeline through systematic withdrawals. 

Step 5: Re-balancing Periodically

Re-balancing is another essential aspect of managing an investment account effectively, but it is something that most people fail to do. Periodic review and prioritization are necessary as life changes, your goals may also change. Reviewing your investments periodically keeps you on track. Failing to re-balance your investments can erode your savings and increase your risk exposure over time. For these reasons, it is vital to make re-balancing a regular part of your investment maintenance practices. Experts recommend reviewing and re-balancing your portfolio every quarter to six months. Clarity of near-term goals also helps identify re-balancing frequency.

You should now be all set to align your investments to your goals. At first, this may all seem daunting. However, the sooner you go through this, the faster you can accomplish your goals. Happy Investing! Let’s get aligned and hit some goals! 

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