Five golden rules of building wealth the ‘S.M.A.R.T’ way

Rahul Jain

In November 1982, management guru George T Doran had authored a paper titled S.M.A.R.T Way to Write Management’s Goals and Objectives, which discussed the importance of management objectives and the difficulty in setting them.

S.M.A.R.T thereon has evolved as an acronym giving criteria to guide the setting of objectives, namely standing for

S- Specific
M- Measurable
A - Assignable
R-Realistic
T- Time-related

In the last decade or so, this criteria has further seeped into defining your investment choices as well. This is because like every investor, you want to choose the investment that will provide you with the growth and income you need to meet your financial goals.

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To do that you need to first understand yourself as an investor. And in case you are under a dilemma, there is certainly a S.M.A.R.T way to go about it.

Let me take you through how:

Specific investment goals with quantifiable returns:

Taking time to consider what you want to achieve because of your investment process will guide you in determining specific investment goals. For example, your investment goals for the money that you’re saving for retirement may be different from your goals for the money that you’re saving for a down payment for a house.

But, whilst you are working on this process, i.e. of working on your individual needs and desires ensure that your investment goals fit in with your entire financial portfolio.

Your portfolio returns need to be consistent with your goals, you can try and set up your portfolio in a manner that it averages a certain percentage of return over time, or so produces a given level of income.

Also remember that while identifying your goals, learn to move beyond the conventional instruments. Your investments will never gather pace if you continue to choose traditional instruments.

Get together with your financial advisor and add a healthy mix of stocks, mutual funds to your portfolio. Moreover, in case you are starting out career-wise, you could also choose to dabble in equity to gain maximum returns.

Define your time horizon:

Probably the first question you should ask yourself while setting your investment goal is, “What is my time horizon?”, In other words, when will you need the money. Your time horizon for a financial goal will have a significant impact on the type of investments you choose to try and achieve it.

There are two schools of thoughts which work here. Several financial advisors believe that a longer time horizon will provide you with more opportunity to ride out the fluctuations on your investments.

On the other hand, if your time horizon is short, you may even compromise with a relatively lesser return, if it provides you with a reassurance that your money will be there when you need it. Additionally, a shorter time frame will enable you to recoup losses, if any.

Assignable tasks and realistic timelines

While trying to complete a task as a team, the team leader often segregates the tasks into different functions within the team – with each member working on a realistic timeline to complete the task. Your money works pretty much on the same line.

After identifying your investment goals, you need to divide your money into brackets to fulfil those criteria.

Are you investing for your child’s college education or do you hope to achieve some short-term gains via the investment? These simple questions will play a defining role in charting your portfolio.

I always believe that when it comes to your investments, your objectives are a defining point to identify that rate at which your money will grow. I am pretty sure, if you use these simple and smart techniques to identify your goals – you will certainly gear towards wealth creation in no time.

The author is Head, Personal Wealth Advisory, Edelweiss.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.