Personal Finance

Overcoming investment inaction

B. Venkatesh | Updated on March 09, 2018 Published on March 10, 2012

Prioritise investment objectives.

We received a query from a reader who seems to have issues about pursuing multiple investment objectives. The issue at hand: How will you pursue multiple goals, given the complexity involved in creating investment portfolios to achieve multiple goals? We address this issue and discuss how you to start-off on a goal-oriented investment portfolio.

Bucketing issue

Suppose you have the following investment objectives: vacation in 3 years, buying a house after 6 years, child's college education in 10 years and retirement in 25 years. How should you create your investments to achieve these multiple objectives?

You may want to consider the bucketing approach. In this approach, you will bunch together investment objectives with similar time horizon. In the above case, you will have three buckets. The first bucket is for investment horizon less than five years. The second bucket is for investment horizon between 6 and 10 years. And third bucket is for the retirement portfolio.

Clustering similar-horizon objectives helps you avoid multiple investment portfolios. Otherwise, you may have to create an investment portfolio for buying a house, a separate portfolio for child's education and so on.

Bucketing could, however, pose a problem. Typically, your investment in equity depends on your time horizon. But creating a single portfolio with multiple goals will lead to multiple time horizons, making it difficult for you to decide on equity allocations.

Facing such allocation issues can be so overwhelming that you may be forced to a state of inaction. That is essentially what our reader was alluding too when he said creating investment portfolios for multiple objectives is complex.

Goal implementation

We suggest that you consider one goal at a time. You should choose the one that cannot be postponed for a later date. You can, for instance, delay the purchase of your house or your retirement date but you cannot postpone your child's college education! You should, therefore, create the education portfolio first.

Focusing on a single goal gets you started on a goal-oriented investment portfolio. And that is the most important decision.

You should apply simple rules to create your portfolio. First, do not invest in equity if your investment horizon is less than five years; for you will have little time to recover losses should your equity investments decline in the initial years.

Second, invest in equity products that are easy to choose. We suggest that you invest in an index fund to start with; for choosing an active fund is not easy. Why? You do not really know whether the fund can beat the index during your investment horizon; that the fund has beaten the index in the past may be irrelevant to you if it underperforms in the next 10 years! Third, invest in bonds that, preferably, match your investment horizon. We suggest you actively look for tax-free cumulative bonds- such bonds pay you compound interest.


Creating portfolios for multiple goals leads to regret aversion bias. You need to prioritize your multiple goals. This means you may have to drop some goals and postpone some others such as vacation goals. And by doing so, you may face regret in the future if you realize then that your priorities were wrong! Regret aversion refers to the behaviour that you will never pursue your goals today because you may regret in the future of making the wrong priorities today. We do not want you to suffer from regret aversion. That is why we want you to focus on one goal at a time.

(The author is the founder of Navera Consulting, a firm that offers wealth-mapping and investor learning solutions. He can be reached at

Published on March 10, 2012
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