The turning point of human evolution is undoubtedly the discovery of Fire. Fire catapulted the human civilization from the darkness of the stone-age to the glistening glory of globalization. But amidst all the changes, across centuries, the one thing that remains constant is our innate ability to dream.
Dreams define us and their pursuit gives meaning to our lives. While our dreams can range anywhere from buying a phone to buying a posh apartment, the ultimate dream is that of achieving F.I.R.E.
– Financial Independence & Retire Early
So, how does one achieve financial independence? StockBasket has finally cracked the best strategy to achieve long term financial goals. But before we reveal the plan, let us understand the basics of financial goals and how to set smart financial goals.
Financial goals are monetary targets that you wish to achieve in your life. Simply put, financial goals are your dreams with a price tag and an end date!
But, are all your dreams financial goals? No, your dream becomes a financial goal only if it passes the S.M.A.R.T. test.
The acronym S.M.A.R.T. stands for Specific, Measurable, Attainable, Relevant and Time-bound.
Specific: When setting financial goals, be specific about the goal. Vague goal-based financial planning leads to uncertain results. A specific goal has definite answers to the ‘what, when, why & how’ of the financial goal.
Measurable: A financial goal needs an efficient and stringent tracking mechanism. If you plan to save Rs 1 Lakh in a year, your progress can be measured by how much you save every quarter. And in case you are lagging, then appropriate steps can be undertaken to get you back on track. Setting a measurable goal helps you stay on track to achieving your long term financial goals.
Attainable: This aspect focuses more on how you can make your goal achievable. Can you upgrade your qualifications to get a better job and increase your savings? Or should you reduce lifestyle expenses to save more for long term financial goals? It is crucial to ensure that you give your 100% to achieve your long term financial goals.
Relevant: The key to setting financial goals is to establish relevant and realistic goals. If you save Rs 10,000 per month, then your dream of buying a home in South Bombay is never going to happen, unless you win the lottery! While there is no harm in dreaming big, setting unrealistic financial goals will inevitably lead to failure.
Time-bound: Financial goals are nothing without deadlines. Having a deadline brings credibility to your goals. You are more determined to accomplish a goal if you know its end date. So, always create time-bound financial goals.
Once you have set S.M.A.R.T. financial goals, the next step is to segregate them based on their time frames. Financial goals are characterized as – Short term financial goals (less than three years), medium-term financial goals (3-7 years) and long term financial goals (7+ years).
Investment Buckets for Goals
|Financial Goal||Short Term||Medium Term||Long Term|
|Time Frame||Less than 3 years||3 – 7 years||7+ years|
|Best Investment Option||Bank FDs, Liquid Funds, Short term debt funds.||A mix of short term debt funds and large-cap (blue-chip) funds||Direct equities or mid and small-cap funds|
Long term financial goals are goals which have a deadline of more than seven years. Examples include planning for children’s education, marriage and retirement.
The success rate of long term financial goals is mainly dependent upon the efficient set up of these goals.
The 5-step approach to setting your long term financial goals
- Determine the current value of the goal
- Determine how many years later do you want to achieve the goal
- Determine the future value of the goal
- Determine the best investment option to achieve the goal
- Determine the monthly/annual investment amount to be committed towards the goal
You can use StockBasket’s Goal Calculator and create your S.M.A.R.T long term financial goal.
Once you have set your S.M.A.R.T. long term financial goal, the next and the most critical step is to find the best investment option for achieving your long term financial goal.
Equities have time and again proved that they are the best investment option for achieving long term financial goals amongst all the traditional (P.P.F., N.P.S., P.O.M.I.S.) & non-traditional (U.L.I.P.s, Mutual Funds) investment options.
While the above graph, clearly indicates that equities are the best investment option to achieve F.I.R.E., the problem is that the direct equity universe consists of more than 5000 stocks. Just imagine how great it would be if all these 5000+ stocks were money makers!
But unfortunately, we don’t live in a perfect world. Therefore only a handful of these stocks can help you achieve financial independence.
So, how will you determine, which among these 5000 stocks can help you achieve F.I.R.E.? Don’t worry; you don’t have to rub rocks for hours to create F.I.R.E. like the caveman.
StockBasket has pledged to help you achieve all your long term financial goals by creating a uniquely curated basket of 5 - 15 stocks, each with the ability to turn your fortunes around!
One of our recommendations, Dr Lal Pathlabs Ltd. which was trading at Rs 896/share in Dec 2015 and is currently trading at Rs 1,880/share, creating wealth at a staggering absolute return of 109.82% in just five years!
And StockBasket isn’t a one-hit-wonder. We have consistently shortlisted stocks which have created infinite wealth for our investors. But don’t take our word for it, take a look at the performance of some of our recommendations.
List of Best Stocks for Long Term Investment
|Sr. No.||Company Name||Share Price||Market Cap. (in Cr)||Returns after 10 years (in %)|
|1||Hindustan Unilever LTD.||2308.50||5,36,407||862.68|
|2||Tata Consultancy Services LTD.||1869.50||6,82,389||388.50|
|4||Bajaj Finance LTD.||2051.00||1,18,549||4683.12|
|5||HDFC Bank LTD.||2308.50||5,36,407||862.68|
|7||Godrej Consumer Products LTD.||539.00||54,632||457.51|
|8||Jubilant Foodworks LTD.||1484.75||6,486||773.38|
|10||NIIT Technologies LTD.||1118.20||6,975||497.64|
* Share Price as on 27th April 2020