Goals-based Financial Planning

Goals-based investing dedicates separate accounts to specific goals. Each goals-based account or carve-out has its own risk/reward allocation based upon importance, immediacy, and timeframe.  The aggregate to the form of one’s total investment and income portfolio allowing you to meet cash-flow goals.

Examples of Goals-Based Portfolios

Goals-Based Portfolios Aggregate to Create the Total Portfolio

For illustrative purposes only and does not represent the results of any investment. Goals are shown as examples. Individuals will have their own goals and assign risk and return objectives suited to their unique situation. Asset allocation and diversification cannot assure a profit or protect against a loss. Past performance is no guarantee of future results.

Goals-based investing and traditional investing are two distinct approaches to managing your investments, each with its own philosophy and objectives. 

Working with an advisor can find the best fit of each to reach your objectives and goals while considering your behavioral biases and psychological factors. 

Goals-Based Investing

Focus: Aligns investment strategies with specific, personalized life goals and objectives.

Objective: To achieve defined financial targets like buying a home, funding education, or securing a comfortable retirement, rather than simply maximizing returns. 

Key Features:

  • Personalized: Tailored investment strategies for each unique goal, considering individual timelines and risk tolerance.

  • Dynamic Risk Management: Aligns investment risk with the timeline and importance of each specific goal.

  • Holistic Financial Planning: Integrates multiple financial objectives into a cohesive strategy.

  • Analogy: Like planning a road trip with a specific destination in mind, goals-based investing focuses on where you want to go and then creates a plan to get you there.

Benefits:

  • Clearer Purpose: Provides a strong sense of purpose and motivation for investing.

  • Increased Financial Discipline: Encourages staying invested for the long term and avoiding impulsive decisions based on market fluctuations.

  • Improved Financial Outcomes: Aligning investments with specific goals can increase the likelihood of achieving them. 

Traditional Investing

Focus: Emphasizes maximizing portfolio returns, often benchmarked against market indices.

Objective: To outperform the market or a specific index over a given timeframe.

Key Features:

  • Generalized Investment Approaches: Focuses on broad asset allocation strategies based on risk tolerance and time horizon.

  • Emphasis on Market Performance: Prioritizes achieving high returns, sometimes at the expense of focusing on specific life goals.

  • Standardized Process: May utilize a more standardized investment process across different investors.

Analogy: Like a race where the primary goal is to cross the finish line first, regardless of the specific route or terrain.

Potential Drawbacks:

  • Lack of Personalization: May not align with individual financial objectives and aspirations.

  • Emotional Stress: Can induce anxiety due to a focus on market fluctuations and chasing returns.

  • Potential for Misalignment: May not effectively address the specific needs and timelines associated with individual life goals.