Investing is one of the most effective ways to attain your financial objectives. Knowing the “when” of your financial goals is critical to becoming a successful investor. Because your financial strategy will differ based on how long you intend to keep your money invested.
What is a timeline in financial planning?
Time taken to achieve financial goals is called a timeline in financial planning. It is important for every individual to understand and ensure the right amount of money at the right time at the right place. Defining a financial timeline solves the majority of problems, this process assists you in determining how much money you need to achieve your financial goals.
The financial planning timeline assists in the identification of possible strategies for creating an effective and efficient strategy. While each person’s or family’s financial goals and circumstances are distinct, these significant dates give a framework for making more intelligent financial planning decisions.
The financial strategy includes short- long term goals as timeline required to achieve your retirement plan is long term and planning a Maldives vacation for this April is short term.
What is risk capacity in financial planning?
The highest amount of risk that an organisation can accept is referred to as risk capacity. Risk capacity should be established at the start of the risk management process; it can be used to guide risk analysis and the selection of acceptable risk actions.
The direct relation between time horizon and risk capacity
- Long term:
The time taken to reach your financial goals is greater than 10 years then this comes under long term time horizon.
One example of a long-term time horizon is retirement. When it comes to planning for your retirement, which will be in ten years, you will need to make your money work for you. This means earning a higher rate of return above inflation while yet allowing your principal investment to grow.
There is no guarantee of future, the investment risk taken is higher in this case.
With a strong and well-diversified portfolio is the best option for long term goals.
- Mid-term:
Time taken to reach your goal is greater than 3 years, it is said to be midterm goal.
Midterm goals are difficult to manage since you must balance the money/assets you’ve saved so far with the objectives you’ve set for yourself.
Mid-term goals are ones for which you’ll need to save money over time. They might also be something you’re excited about but aren’t quite ready for yet. You can possibly afford to take greater risk with your money if you have more time or more flexibility in your timetable.
- Short term:
Short terms goals are generally achieved within 3 years time. The closer the goal the lesser risk is. As you have decided to spend the amount for a particular purpose. So, you will only concentrate on safety and liquidity rather than growth.
As your priorities or living situation changes, you may decide to postpone some goals for a year or two, while attempting to accomplish others sooner. Some things, like a second house you were intending to buy or an expensive family vacation, you may opt to skip entirely. It’s important to maintain flexibility and alter your schedule to shift demands and objectives.
As discussed, the longer the time taken to reach your goals the higher the risk. So it is always advisable to reach the experts who solved many critical situations in attaining financial goals, We are the best SEBI Certified investment advisory company in Hyderabad.