Goal-Based Investing

A friend texted me on Saturday asking which fund to pick for his daughter's college. Then, almost as an afterthought, "and the same one works for my retirement, right?"

His daughter starts college in about three years. His retirement is twenty-two years out. He was about to pour both into the same chart-topping smallcase, because it had the best five-year line on the app.

Here is the part most people skip. The return chart does not pick the vehicle. The shape of the goal does. And every goal has exactly three measurements.

The first is duration. Money you need inside three years can still be sitting in a drawdown when the bill lands, so it does not belong in equity. Money you need in ten or more years has no negative rolling window on record, so equity is exactly where it should sit. His college seat and his retirement are not the same problem. One is a debt problem. The other is an equity one.

The second is the amount, and this is the one that quietly breaks plans. A college seat that costs Rs 20L today is not Rs 20L in fifteen years. Run it at eight pct education inflation and it is Rs 63.4L. Save for today's price and you will hit Rs 20L on schedule, then stand Rs 43L short of the seat. That was never an investing failure. It was an arithmetic one.

The third is flexibility. A goal whose date can slip a year can hold more equity, and let compounding finish the job. A hard deadline forces you to de-risk early and accept a smaller number.

Pick the fund last. The goal already told you almost everything that matters.

The math behind every goal, vehicle and SIP, walked through step by step: