What Is Goal-Based Investing?

There is investing, and then there is goal-based investing. 

The former is 100% about the numbers, occasionally illustrated with charts. Goal-based investing, on the other hand, offers you a more personal connection to your financial plans.

It’s a sort of paradigm shift: as an investor, you now find a life goal you want to fund and then plan investment strategies to reach it. 

As a result, your journey is as much about your experience along the way as it is about reaching your destination.

Chapter 1

What is the Purpose of Investment?

The more you focus on the reason why you want to invest in something, the easier it is to stay diligent about getting there. 

So, goal-based investing makes it easier to consistently focus on your short and long-term financial objectives. Even the way it is measured is more concrete and engaging.

Unlike traditional investing, the metric for goal-based investing’s success lies in how close you get to your predetermined goals. This makes the whole endeavor more purpose-driven.

It also gives goal-based approaches more inherent appeal. Traditional investing’s standard involves measuring assets’ performance against market averages. That can be abstract and hard to connect with the joys and challenges of everyday life. 

Meanwhile, goal-based investing links the actions you take today with tangible rewards and achievements you can see getting closer week after week. Instead of numbers and charts, you connect to the real-life benefits your efforts are creating.

Chapter 2

How to Set Financial Goals and Achieve Them

In order to be successful with goal-based investing, you have to be honest with yourself and your spouse about what your dreams really are. 

Do you want to retire at 50? Never retire? Live on a houseboat? Devote your retirement to a butterfly and bee sanctuary, or make wine in your own vineyard?

Too commonly we dismiss our dreams because we don’t think they are possible, but the point of goal-based investing is to find a way to live the life you really want.

Once you’ve identified where you want to go (and we will help you and your spouse figure that out) only then do we help you create a step-by-step plan to move from where you are to where you want to be.

For instance, if you want to create a college fund for a 4-year-old, that plots out to roughly 14 years from now (when he or she reaches 18). 

Tuition rates vary with schools and their locations, but a financial advisor can help you estimate the minimum amount you’ll want to accumulate by that deadline.

It should much easier to prioritize the investments necessary to reach this finish line. They are not as easily dismissed as expenses that require no planning.

However, there is another phase to the initial process. You still have to determine your present and future costs. 

For our tuition example, a degree from Anywhere University may cost $20 thousand currently. Roughly estimating a 6% inflation rate over the next 14 years, that will run over $45 thousand by the time the child reaches enrollment age.

Given this information, you and your financial advisor can begin determining the best sort of assets for generating the funds you need within your time frame. 

If you already have a portfolio, you can factor potential returns in with your monthly or annual income to map out a savings plan. From there, the last unofficial step may be verifying that your steps are arranged in the right direction.

In other words, consider reviewing your monthly budget in case any adjustments need to be made. No one is saying “start living on ramen,” but sometimes trimming (or ending) expenses that aren’t essential to your current life can do wonders. 

Remember: There isn’t really a perfect time to start saving/investing. However, as soon as possible is generally best.

There is a great reason for this. The earlier that you begin, the more likely it becomes for you to reach your financial goal and potentially pay a lower cost for whatever it is that you’re saving for, such as a second home. 

If you start saving now, the amount you need to set aside for your savings contributions may be lower than if you were to invest a larger sum at one time.  Clearly, you aren’t necessarily penalized for dragging things out, though there are significant benefits to doubling up when possible.

Chapter 3

Behavioral Finance and Goal-Based Investing

Now you know the basic steps, there are a few moving parts behind the scenes. The genius of goal-based investing is rooted partially in something called behavioral finance. 

To be blunt, people make questionable financial choices every day. Many leap before they look, reacting without first doing the appropriate research. 

Others approach the market like a horse race, betting their money on whims or their current emotional state… and then wondering where it all went if the market conditions change.  

Behavioral finance is all about understanding how you make financial decisions.  Do you make fast, subjective buying decisions or do you take your time to consider the consequences of that purchase?  That is what behavioral finance is all about. 

Taking both emotions and psychology into account, this area of study looks for explanations as to why you make the types of financial decisions that you do.

It has led to intriguing insights. People seem to make financial decisions primarily due to cognitive biases, their moods, or both. 

No matter how we like to think of ourselves as logical or rational by default, that is not the most common pattern. The evidence often suggests otherwise. 

For instance, you may want to purchase a sports car that is just within reach but  purchasing a mid-range sedan may be a better long-term option in order for you to achieve a financial goal you have. 

This is why goal-based investing helps investors avoid poor investment decisions. That’s the beauty of goal-based investing:  You can avoid common pitfalls and stay on track towards your goals.

Chapter 4

You Can Dream Big and Make it Happen

At ViaWealth, we offer a more personally-tailored variety of goal-based investing. In fact, our specialty is values-based planning. 

This means that we recognize the importance of getting to know you, your values, and your intentions. Doing that lends a better understanding of your financial goals—and highlights our best means of helping you achieve them. 

Sometimes a person may walk into our office who lacks the ability to fully articulate their innermost long-term goals. Worse yet, they may not be able to fully express what prevents them from achieving them. 

Thankfully, we are not afraid to do little detective work. So when necessary, we use scalable, repeatable tools to help you uncover your personal definition of wealth. 

Once we have determined that, we can start building a financial plan together that will serve as a realistic map guiding you to your ultimate monetary objectives. 

We deploy planning financial strategies that enable you to enjoy your life while making your way along that path, as well. That’s because, as your fiduciary, we honor our obligation to always act in your best interest.

This is why we rely on time-tested processes and plans in combination with efficient and transparent investment strategies. Utilizing both enables us to consistently provide you with optimal service and insights.

In return for your trust, you gain clarity about your intentions and goals. That, in turn, will provide you with a stronger foundation to make well-informed, intentional financial decisions.

Chapter 5

Financial Literacy, Retirement Planning, and Estate Planning

Financial literacy should be something everyone learns in school, but sadly, it isn’t. 

While you don’t need to have a degree in finance, an understanding of financial principles is a powerful tool for achieving your financial goals and working towards financial independence. 

These tools address the core of how you relate to money and can create substantial improvements in your life, both in the short and long term. 

This kind of learning is essential to achieving outstanding fiscal returns. Conversely, ignorance can cost undisciplined investors dearly. 

At ViaWealth, we do more than teach you financial principles. We use a proven and codified process called Finlife to help you understand your relationship with money and what motivates your financial choices. From there, we help you create a step-by-step plan that gets you to the life and retirement you want.

Most people are living a life by default. As you deploy more behavioral finance practices into your day-to-day, you set yourself up for the sustained financial success you want to enjoy. 

For many people, the desire to leave a legacy is what makes estate planning so important. As many as 70% of people making $100,000 or more annually said in a survey that they want to pass wealth down to their heirs. 

However, only 32% of the same group said they currently have a will. If over half of them were to pass away before they get around to it, their assets will be distributed by the state.

In that case, probate will delay the process and the estate will be subject to extra fees and costs. If you have special intentions for your legacy, get them down on paper well in advance of when you’ll ever need a will. You can always update it later, but you’ll enjoy the peace of mind of knowing it’s in place.

Financial literacy isn’t hard to achieve. You don’t have to be a math whiz or a finance guru to consistently make excellent financial decisions. 

The result of a little planning and effort can be the difference between a comfortable retirement full of activities and people you love or tight budgeting and struggle. It can deliver your legacy to your family and community exactly as you envision it.

Chapter 6

The Strategic Difference Between Short and Long-Term Goals

If you are decades from retiring, planning for it may seem unimportant. Nevertheless, compound interest is a remarkable wealth-building force that delivers its most significant benefits over time.

The more time your money is invested, the more interest it can accrue. At a 10% rate of return, a $1000 investment will be worth around $2000 after six years. After 20 years – with no additional deposits – it will have grown to over $7000. 

As a rule of thumb, the more long-term-ed your financial plans are, the better off you are. That is why so much of successful financial planning revolves around choosing meaningful objectives that motivate you.

Once you learn more about your personal definition of wealth, an exciting mix of short and long-term goals puts you on track for regular rewards. 

Both are extremely important, and there is a strategic difference between the two. A short-term goal is commonly considered a financial objective that takes under five years to reach. 

Short-term goals can include saving for a fun family vacation, paying off a credit card, saving a downpayment for a home or investment property, or starting a small business. Naturally, the time frame for each will depend on your individual circumstances.

Long-term goals, predictably, have more extended time frames. These are typically the ultimate, big-win objectives in someone’s life. They can range from paying off your home mortgage to financial freedom.

Short-term and long-term goals work well together. They just have to be arranged thoughtfully and specifically for your best results. 

Generally speaking, your long-term goals should shape the formation of short-term ones. We can sit down with you and discuss these possibilities.

Chapter 7

How To Start Goal-Based Investing

Are you starting to see the wisdom of goal-based investing? This article summarizes the basics, but we would enjoy helping you begin this exciting journey. 

In fact, you might say that we’ve already saved a seat for you. Once you are here, we can begin the process:

  1. Visualize your goal. What do you most want to achieve in life? If you have more than one answer, which objective might make a good long-term financial goal?
  2. Integrate your plan. This is where we sit down and go to work together. Setting our financial sights on your goal, we will map out your best potential route for getting there in the least time necessary.
  3. Realize your potential. There’s nothing like the breaking-the-finish-line-tape feeling of reaching a long-term objective. If you have a dream and the ambition to pursue it, we can help you find your optimal way to it.

Plan Your Best Future With Us

We want you to live your optimal financial life, and we know we are uniquely skilled, talented, and equipped to make that happen.

Our team of financial professionals has been providing goal-based planning and investing services to individuals, families, and small business owners for years. Feel free to contact us today.

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