Goal Planning: Inefficient way of Investing

Goal Planning: Inefficient way of Investing

The heading of this very blog might hurt my fellow financial planners, but the reality is not in any other from than this.

Yes, you read it right champs, planning just for the goal is not always an efficient way of investing, provided our advisor fraternity must talk about risk and returns in a correct order. The basic idea behind goal planning is to match the different investments with different set of life goals, i.e. curating different buckets for multiple stages of an investor’s financial life.

Recently, I went to attend the Morningstar Conference(just before corporate tax cut) in Mumbai, and with the negative sentiments my fellow advisors were hell bent on counting the benefits of goal planning, the one that has been a recent pick up between the mutual fund advisors. Earlier, the discussed agenda was the powerful tool for life insurance agents who were more into the planning scenario.

Someone quoted, the famous saying of Benjamin Franklin “If you fail to plan, you are planning to fail!“, but my problem is not the planning but connecting your investments with goal planning.

When goals are far-reaching, people tend to overestimate them and stop working hard to achieve it and when we are about to reach our goals we may not work efficiently on achieving the same.

For me, wealth creation is the efficient use and optimum utilization of the resources available. The color of the money is the same and it’s fungible, so investing in an inefficient manner just because we cannot explain our clients the risks of investment is absolutely non-admissible.

There cannot be a better manner than understanding the needs and cash flows of investors and then developing a strategic asset allocation plan and then investing the same in a diversified and planned manner based on present valuations of asset classes.

Advising is an instrument of helping people to invest in an efficient manner and not an escape where we don’t discuss investments and the associated risks. Just to add another example of the inefficiency of advisory, the advisors themselves are suffering from home bias i.e investing in thier own country itself and expose their clients with the country risks.

I will surely come up with the benefits and downsides of geographical diversification my next blog.These Ideas are based on investment of HNI’s and may not be valid for retail MNIs and salaried class where emotional biasess and limited monetory resources plays a bigger role, till then invest efficiently by understanding it’s risks.


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