For several years now, the concept of "liability-driven investments" has been gaining traction among professional investors. This principle is grounded in a straightforward idea: your investments should mirror the obligations for which you are making them.
This implies that you must select your investments and savings based on the objectives you wish to achieve, rather than purely on which markets are projected to outperform in the upcoming months.
While other market-related factors are undeniably significant and should be taken into account, they should take a backseat in your decision-making process.
First and foremost, it is vital to comprehend your financial requirements, the length of your investment horizon, and your risk tolerance.
For example, if you require a steady income over the next few years to cover tuition payments, it would be illogical to invest in a fund that does not provide dividends and whose profitability is highly volatile—even if it promises substantial returns a decade from now.
Likewise, if you are approximately 35 years old today and you are investing funds intended for your retirement in 30 years, there is no need to be excessively worried about short-term stock price fluctuations occurring over a few months.
In this context, successful investing is not centered on maximizing profitability, but rather on pinpointing assets that perfectly align with your specific requirements.
Over time, your needs and plans may evolve, or you may discover that the assets you have chosen are not fulfilling your expectations. Thus, it is equally important to routinely review your investments, as you would in other scenarios.
