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What is Goal-Based Investing?

By: dayna

Date: March 18, 2020

At Altium our philosophy is built around goals-based investing. Simply put, it is an approach that focuses on investing to achieve specific life goals rather than aiming to generate the highest possible portfolio return or to beat a stock index. Why would you not want to achieve the highest return possible? Because higher risk, which is always needed to achieve ever more higher returns, can lead you on a very emotional ride filled with ups and downs with no clear destination in sight.

Realistically, when translating a life goal into a financial plan with your councillor, you need, at the minimum, to specify a target amount you wish to attain, an initial level of savings and a time horizon. That information will help in setting a required return objective and the adequate level of risk needed to achieve it. For example, a goal of wealth preservation, which is defined as maintaining purchasing power after accounting for income needs, taxes and fees, can generally be translated into a target gross return of CPI+4%. Over the long term, the latter return target is different than what is expected of the equity markets, and consequently so is the risk level.

This philosophy carries with it many advantages. Namely, it will provide you with a higher level of understanding and a peace of mind because outside influences will have been mitigated. Your attention will be focused more on your customized financial plan as opposed to the sometimes-sensationalized developments in the capital markets.

Secondly, because various targets are clearly stipulated from the onset, a goals-based investment strategy allows for a clear and easy way to evaluate success or to rectify any shortcomings identified within your customized investment plan.

Lastly, it helps create a significant bond of trust with your councillor. As previously stated, identifying goals is no easy task, and therefore meaningful and personal conversations around your total wealth will need to take place. These conversations will extend beyond investment products and the media’s coverage of the ups and downs of the various markets. The result will be a sound financial plan with a clear path – a specific target return, asset allocation and risk level.In short, we believe that a goals-based philosophy helps maximize the chances of investment success while mitigating many of the investment struggles you may face.