Focus on Financial Goals
Are you chasing returns? Focus
on goals instead
Tell anyone that you invested
in mutual funds, and the first question they are most likely to ask is how they
are performing, i.e. what are the returns. Returns are the first and probably
the last thing on many investor’s minds.
Chasing Mutual Funds Return
But chasing returns is not a
healthy option. Investing in a fund because it tops the charts of one-year
returns is a wrong way to look at investing in general. It is seen that many
investors keep jumping from one fund to another based on one year’s returns.
While they may presume that it will help them to build greater wealth, but in
reality, it is detrimental to their financial health. Investors forget to take
into account the cost and taxation associated with exiting from one fund and
investing in another. Also, the ranking of top-performing funds keeps on
changing regularly.
Chasing Top-Performing Asset
Class
The scenario is not just
limited to mutual fund investment. Investors also look at the current
top-performing asset classes. These asset classes may include gold, real estate
etc. Thinking that they will miss a rally, investors invest in a specific
asset. But they are most likely to get the timing wrong and invest when the prices
disappoint investors, and soon, they exit the asset class and invest in another
investment product.
As a result, investors fail to
build wealth over time. The right approach would be to focus on financial goals
rather than chasing after returns. It may not sound exciting, but investing is
not supposed to be exciting.
Focus on the Goals
Staying focused on your goals
can help you to achieve your goals. Whether its short tern goals or long-term
goals, it is essential to stay focused. Knowing the timeline of your goals and
investing in appropriate funds will help you stay focused and achieve your
goals with ease. For example, If you have a goal of buying a house in 10 years,
then chasing funds based on the current returns is not the right approach.
Also, if your goal is to save for a vacation in 6 months, looking at the 1-year
return will still not make sense. It is because, in this case, your objective
should be to protect your capital rather than focusing on returns. Hence, the
importance of focusing on goals far outweigh the compulsive to look for better
returns.
Moreover, in the case of
equity funds, one-year returns are not adequate to judge the performance of the
funds. One should only invest in equity funds if they have a time horizon of five
years or more.
Our financial goals are
similar to career goals. To achieve our goal of working in our dream company or
setting up business require discipline. The image of the end goal is what keeps
us motivated, and distractions do not stand a chance. Investing is no
different. It is the discipline and focus that count and make dreams a reality.
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