Is having separate portfolios for each financial goal a smart move?

I have seven to eight financial goals. Should I create separate portfolios and SIPs (systematic investment plans) for each of them? Wouldn't that be too difficult to manage? - Anonymous

You are right. Creating separate portfolios for each financial goal doesn't make sense, as managing them would be cumbersome.

What you should do instead is segregate your goals according to their time horizon and level of importance. Ideally, they should be categorised into short-term, medium-term and long-term goals. Short and medium-term goals are those that are to be achieved in the near future, that is, within five years. These goals are typically non-negotiable and, thus, should be prioritised above those that can be fulfilled later. Therefore, to achieve them, you should invest in fixed-income instruments like debt funds, preferably liquid funds (for one-year goals) and short-duration funds (for 2-4-year goals). That's because these funds carry moderate risks and provide stable yet predictable returns.

On the other hand, if your goals are more than five years away (long-term goals), it's best to invest in equity funds. Though volatile in the short run, equity is known to provide inflation-beating returns, helping you accumulate a sizable corpus over time. Examples of long-term goals include buying a house, funding your child's higher education, etc.

As for creating goal-specific portfolios, you can group similar goals and use Value Research Online's My Investments tool to track your progress. What's more, you can tag your investments for specific goals without making multiple portfolios, enabling you to know if you are well on your way to achieving your goals.

Also read: How to build a portfolio

This article was originally published on September 12, 2024.