If you have, say, two life goals that you would like to achieve in the next 10 years, can you create a single investment portfolio to meet both these goals? The question is relevant because you can then combine goals based on time horizon.

This will reduce the number of investment portfolios that you have to maintain. In this article, we discuss when you should combine your life goals and when you should not.

Goal priorities Suppose you want to fund your daughter’s college education eight years hence and accumulate wealth for your son’s marriage 10 years hence. Can you create a single investment portfolio to meet both your life goals?

First, you need to evaluate this related issue. Your daughter’s education is time-bound; you cannot postpone her education even if the investment portfolio meant to pay her college tuition underperforms. But you could postpone your son’s marriage by a year or two, if required. So, the priority of both goals is different even though they have similar investment horizon.

The risk you can take in your investment account depends on the goal priority. Goals with higher priority should be invested with lower risk than those with lower priority. So, the risk you can take on the investment account earmarked for your son’s marriage is higher than that you can take on the account for your daughter’s education.

So, when should you combine two life goals into one portfolio? You should do so when both life goals have similar investment horizons and risk levels.

You should take care to match the maturity of your bond investments with each of the two life goals. Suppose you have two equal-priority goals, one with an eight-year investment horizon and the other, say, a 10-year investment horizon. In addition to equity, you should invest in eight-year fixed deposits and 10-year fixed deposits to reduce your investment risk.

If you have goals with different priorities, you should have two different portfolios. But you can link the low-priority goal to the high-priority goal with similar investment horizon. In the above example, link your son’s marriage account to your daughter’s college education account.

This works because if there is a shortfall in the high-priority goal, you can transfer money from the low-priority account to fund it. You should review the high-priority investment portfolio five years before the end of its investment horizon. Your portfolio is fully funded if you can meet your objective by investing it in a five-year bank fixed deposit. Otherwise, you have to transfer money from your low-priority account to fund the shortfall.

Go for it You can thus combine two life goals into one investment portfolio only if the goals have the same priority with similar investment horizons.

If, however, one goal has lower priority than the other, but both have a similar investment horizon, you should link the low-priority goal to the goal with the higher priority. This helps bridge the shortfall, if any, in the high-priority goal portfolio.

The writer is the founder of Navera Consulting. Feedback may be sent to >portfolioideas@thehindu.co.in