The temptation of higher returns is tough to sustain. Returns are often deceptive because of the market volatility, which is almost impossible to predict. In this article, we will study why targeting returns is futile, while goals are the ones to watch out for. Investment without returns can be fatal and you may end up in a financial mess. Sometimes, returns could be positive but not sufficient enough or not worth the hassle paid for. Each individual has a unique lifestyle, which s/he does not want to alter. Therefore, going by the lifestyle you could figure out how much you will need at the time of retirement. Now, all you need is to invest in avenues that match or exceed the expected rate of return.
Why goals are important
Each financial goal requires a different time frame of investment, and each time frame gives you the risk one may afford. When we have goals, we know our requirement of funds and the period within which we need to achieve them. This simplifies our task rather than thinking about timing the market and being under the fear of losing money. Each financial goal could be assigned a financial asset, like a fixed deposit or a liquid fund that could help cater for our short-term needs like a foreign vacation. Similarly, a midcap or large cap fund could help design long-term needs. Diversification could prepare you for any risk so that if one investment is in loss, the other could balance it out. Keeping a moderate return expectation could help you plan and lead a peaceful life. Whereas, when you target return, it could lead to frustration, unhappiness, and miserable living. Plan early, stick to it, and review the plan regularly. This way you have a higher chance of achieving your goals and that too without much stress.
Why not returns, why goals?
When chasing returns, you always jump into hasty decision-making, generated by the hype of an asset class. When choosing an asset for investment, analyse its pros and cons, and risk metre. After giving due regard to investment objective coupled with risk-taking appetite, make a choice. However, this does not happen while chasing returns, the reason being the fear of missing out. We are easily influenced and often end up in unwanted situations.
Let's look at this through an example. Rahul has invested in the equity market on his friend's recommendation that he can become rich in no time. Rahul invested in equity just before the Covid crisis. Soon, the stock market went spiralling down and Rahul had to sell his entire investment at a huge loss. Nobody predicted that a pandemic would cause the market to crash. However, after two years, people have learnt the lesson in the most difficult possible way. Anjali who started investing in mutual funds at the same time has now almost doubled her investment and is on course to achieve her goals.
Timing the market is impossible. However, achieving financial goals sounds practical and sensible through planning, investing, consistency, and watchfulness.
(Viral Bhatt is the Founder of Money Mantra — a personal finance solutions firm)