What is goal-based investing?
A relatively new approach to wealth creation, goal-based investing emphasizes an objective of attaining specific life goals. It measures progress toward reaching goals (such as saving for children’s education, retiring early or being able to afford a desired lifestyle at retirement) rather than seeking a given return based on an arbitrary market benchmark.
How is goal-based investing different?
Historically, the investing process has worked something like this: you identify goals, then lump all your discretionary assets into a single portfolio or “bucket.” Progress is gauged by how well the strategy performs against market benchmarks over time.
Goal-based investing examines your goals and assigns each a separate investment strategy relative to the goal’s importance, time horizon and level of risk you are comfortable with.
- Performance is measured as progress toward achieving each goal, rather than returns compared to an arbitrary benchmark.
- Risk is viewed as the possibility of failure to fully achieve a specific goal. Logic dictates you can take more risk with long-term goals and less risk with short-term ones. Similarly, it makes sense to take less risk with the funds designated for needs, like day-to-day living expenses, while accepting more risk for discretionary “wishes” or “dreams” goals, like luxury vacations.
- Assets include all your available resources: monetary assets, securities, real estate, employment income, social security, etc.
- Liabilities are loans, mortgages, other debts, etc., in addition to the capitalized value of the needs, wants and dreams.
How do I get started?
Call, email or stop by a Central Investment Advisor’s office. They will provide tools to help you define and prioritize your goals, as well as to compile information necessary to begin the process. Then you can arrange an initial confidential, no-obligation consultation to discuss your goals and how to attain them.