Hello Readers!
People have a number of goals, some short-term, some long-term, and importantly, all of these is must achieve. If we look at the big goals, they are many like retirement planning, child education, house purchasing, child’s wedding plan, and many. These goals are big and meant for long-term, thus for these, you can keep everything in Equity Funds and keep withdrawing as required.
However, in case if you invest everything and create a big pool of equity investment for 3-4 different goals, the investment portfolio created might get confusing. What if you end up withdrawing more than required for goal A, thereby compromising goal B?
Well, labelling your investment can work better in this situation. Although people do not require labels but being an investor, one must understand that labelling their investment is necessary, in order to restrict their investment portfolio from being muddled.
It is necessary for an investor to understand that money is fungible, they can use 500 bucks to buy a chocolate or they can use the same 500 bucks to start a SIP in mutual funds. Thus, labelling your investment is necessary. Learn how you can do it.
Bucket It Out
Asset choice to invest can be the same for more than one goal, what an investor needs to do to distinguish one investment from other is to choose different funds of the same asset for the different goals.
Suppose you are planning to save for your child’s education expense that you would require in the next 10 years, and at the same time you are planning to save for retirement. Here you have two aspects, for your child’s education goal, the amount required can be more specific whereas for retirement your goal may be to create as large a kitty as possible.
For both these goals investing in Equity mutual fund for long-term is suggested. Here you have only these two long-term goals and not any other. Thus, to achieve these goals you invested all your surplus in Equity mutual funds, here the issue arises, your one goals have a fix investment horizon while for your other goal the investment horizon is vague.
When the time comes to accomplish the education goal, and a situation arises where the expense is more than you estimated, then you will have an option and you can withdraw more as your equity investments will show sufficient amount.
But in reality, you will actually be withdrawing additional amount required from your retirement kitty. At last, you will end up stretching the timeline that you fixed to create a large retirement kitty, in order to gain the additional amount that you withdraw for education goal, from your retirement kitty.
Well, you can stop this situation to arise, by labelling your investments. Long-term planning can be vague, but you need to be more specific regarding them. Like many people have their retirement kitty planned that also includes the cost of purchasing a house and their child’s education plan. However, one needs to understand that cost of purchasing a house or child’s education plan are big cost goals in themselves and needs to be planned separately.
Things To Keep In Mind
You should always remember, while calculating your corpus required for the goals, always take inflation rate into consideration.
While allocating funds for your goals, pick at least 2-3 funds for one goal for the sake of diversification. Remember you are investing for a long period and changes in scheme strategies or fund managers might occur, in such situation diversification in your investment will work better.
Label your investments with different goals, investing through this strategy will help you grow your investment corpus adequately for your goals. And investing through this strategy will also restrict your investment from getting muddled.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).