Golden Rules for Investments: Equity, Mutual Funds, SIP

Chase goals, returns will follow 

Take a minute and think of all the things that you would do if money was not a constraint. Maybe buy that dream home, take an exotic family vacation, purchase the swanky car that you have always fancied, or send your children for education to the best of institutes abroad. If you harbor any such ambition, be assured that you are already on the path to fulfill your dreams. Setting a goal is the first step to achieve success in any endeavor, be it personal, professional or financial.  

“If you want to live a happy life, tie it to a goal, not to people or things.” Albert Einstein

Tying your financial activities to clear-cut goals is the assured path towards financial prosperity. Setting goals are important as it gives us a sense of purpose and direction, making it possible to effectively utilize the resources at our disposal. It also helps us to avoid all the traps that may derail us from our journey to build financial well-being. 

To set the right foot on the path to financial planning, you must consider the following factors while defining your goals:

Break down your goals. Divide your life-goals into short-term (vacation, further education), medium-term (marriage, home) and long-term (retirement). This helps in selecting the right instruments to achieve goals within the set timeframe. Options such as liquid/debt instruments and fixed deposits can be considered to build a corpus of funds for short-term needs. Equity has historically offered around 15-16% CAGR over 15-20 year time period and is the best investment tool for medium to long-term goals. You can also explore SIP route for investing in mutual funds and equities to make the magic of compounding work for you. 

Make the goals measurable. Decide the amount you would need to fulfill each goal. By using any of the free online calculators, you can arrive at the figure that you must save every month to achieve these goals in a time-bound manner. Goals also serve as a reference check of your financial habits. Healthy money management skills will take you closer to your targets. In case you find yourself lagging behind your targets, consider it as a signal to check your attitude towards savings and investments. 

Never lose sight of your goals. The desire to make quick returns has been a key reason for financial setbacks. When the markets are doing well, investors jump in to have a share of the pie, even when they are not well aware of the intricacies involved in stock trading. The experience of friends or colleagues who made some profits through stock trade also serves as an enticement to make the most of market trends, leading to imprudent financial decisions. Similarly, attractive schemes to ‘double the money in a limited time period’ or ‘get 40% returns on investments’ lures investors seeking to reach their financial goals faster. Every investor should be wary of this tendency. Always keep your goals at the core, devise a plan that will help you fulfill them and stick to the plan without getting swayed by the market noise. 

Don’t procrastinate. Without goals, there can be no financial plan in place. The sooner you fix your targets, more the time you have on hand to make the benefit of compounding work for you. Any delay in the goal-setting process would require you to save more as you tend to lose on the returns that compounding could accrue for you.  

Henry Ford rightly said, “Obstacles are those frightful things you see when you take your eyes off your goal.” It is only by keeping your eye on the prize that you can avoid all the diversions and work single-mindedly to make all your financial dreams come true.  

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