How long is long term investing?
A few weeks ago, during a dinner meeting, I overheard a couple talking about their long term plans. One of their topics of discussion that caught my attention was how they want to move to a small town like Lonavala or Shimla permanently.
September 19, 2011 / 16:23 IST
By Sumeet Vaid, CEO of Freedom Financial Planners
A few weeks ago, during a dinner meeting, I overheard a couple talking about their long term plans. One of their topics of discussion that caught my attention was how they want to move to a small town like Lonavala or Shimla permanently. This got me thinking. Most people around me keep talking about how they want to do something in long term or short term. This got me thinking, how do we classify our goals? Do we often look at investing as a method to achieve that goal or is the investment our goal in itself. The answers to these are rather subjective. However, what I have realized is that most of us while investing believe that is often for long term. Yet, truth be told, one seldom invests consciously. Investments are driven by accident when an income minus expenses gives us a surplus. It is the goal that matters: This is one that people get confused about. It is not an investment that is long term. It is the goal that matters. Since it is your goal and dreams that you are working on, what matters is that you distinguish if that particular goal as a short term one or a long term.A simple method that I would suggest is to write down your goals and when you would want them to be fulfilled. Accordingly, you financial planner can help you draw a plan that suits not only your budget but also your time frame. The important thing to remember is that it is the goal that has a term of fulfillment and not an investment or a person or a place. Understand your time frame: A misconception that most of us have is that we believe that two people who have similar goals can have a similar execution period. This generally will not happen because the income, expense and saving pattern of each individual is different. Your financial plan to achieve a goal will be unique to only to you. It is a relative term - to have a goal or an investment for long term or short. What you need to understand is that long term for one person may be two year, whereas for another individual it would be 5 years. The ideal thing to do at such a time is to understand when you would like your goal to be fulfilled. As per those needs, your financial planner will make investments that will fulfill your goals. Blind investment is not the answer: A friend of mine one day came up to me and said that he was investing his money for a future goal. When I asked him about the goal, he said that he was not yet clear on them as he had too many and was investing blindly. When the time came to buy a new house, he realized that he was short on funds and needed more. Blind investment is an impulsive investment which has no logic but only emotions driving it. For e.g. People rush to buy an Equity IPO of large company (without attaching defined goal with it) just because all papers, channels and friends are talking about it.
This is not an uncommon phenomenon. Many of us think that blinding investing our resources can help us. What we fail to understand that this kind of investment only helps us to bring in our resources together. When you invest to fulfill a particular goal, you will know how much you need to invest. My friend understood this, but late. If he had invested keeping in mind that he wanted to buy a house by the age of 40, he would have been better prepared and would have invested his resources accordingly. Can goals have a term? : A client asked me if a goal can have a term effect. This reminded me of the conversation I heard in the restaurant during the meeting, where the couple stated that they would like to live in Lonavala for long term. There is a flaw in that sentence. A goal or a dream is based on a time frame. Goals need to have a defined time line, return expectation, risk ability and based on this we have to choose the underlying investments to help us live our dreams. While you may have too many goals in mind, it is important that you decide on which is more important that you would want to see work on. If you feel that travelling to a new city or place is a goal that you want to achieve by the age of 45, then your planner can help you invest funds so that you an achieve the same. Before deciding about investment avenues and how long you need to stay invested, you need to understand the correlation between dreams and goals, and how they both fit into your long/short terms investment decisions. We all have dreams which relate to our desires and aspirations in life. We seek to fulfill these dreams once we begin earning a living for ourselves. To transform dreams into reality we need to think about them financially. If you want to go for a mountain trek then when do you want to go and how much will it cost you? The same would apply to planning your daughter
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