Goal-based investing in asset management is somewhat new to wealth management and differs from traditional investing in unique ways.The traditional investing philosophy focuses on portfolio construction to achieve the highest return
The goal-based investing philosophy focuses on attaining a specific goal first, then uses the portfolio construction as a tool to achieve the goal.
Purposed Based Investments
Each investment has a specific purpose in goal-based investing and is independently monitored. Also, the goal’s progress is monitored and the investment’s strategy revised as they get closer to meeting the goal. In this manner, the entire portfolio is not adjusted, only individual assets for specific goals. The philosophy behind this is that when the purpose of investing is for a specific thing, adjusting the strategy is often easier for the investor to monitor and understand. It also helps keep investors on track to meeting their goal. For example:
- College funding- long term strategy – aggressive risk tolerance – adjust to the goal
- Saving for a house- short term strategy – conservative risk tolerance – adjust to the goal
- Saving for retirement- long term strategy – moderate risk tolerance – adjust to the goal
Goal-based investing measures success based on the client’s needs and goals and is adjusted depending on how well the client can meet the goal. It does not measure success by chasing high returns, putting the portfolio at risk and negatively impacting long-term performance.
How Financial Professionals use Goal-Based Investing
Using goal-based investing, financial professionals help guide investors through thoughtful advice to help them keep their goals in mind. Then advisors develop goal-oriented investment strategies and help investors avoid mistakes from reacting to the short-term performance of the markets. It is a process of monitoring and adjusting each investment one at a time. Therefore, goal-based investing is considered a more holistic approach to asset management.
Once the goals, time frame, and the amount required are clear, the next step is to work with your financial professional on an investment strategy to meet the goal. If you have questions about goal-based investing, contact our office.
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Our family financial services firm, August H. Velten & Associates, has been in business for 12-years in Melbourne, FL. August Velten (CLU) is a 40-year veteran of the Financial Services industry. August is a former instructor for the Life Underwriter Training Council and once occupied the legislative seat for the Maine Association of Life Insurers. In Brevard County, you may have seen him on local access TV or read one of his articles in a local area magazine. Jessica Waterhouse, August’s daughter, left her own practice to join the firm in 2019. Jessica is a Florida licensed insurance producer, securities licensed (Series 65), a long term care specialist (CLTC) and holds certification as a National Social Security Advisor. Both August & Jessica are instructors for financial literacy workshops in both Brevard and Indian River County offering education in Social Security and Financial Planning. Contact the office today to schedule an introductory meeting or review of your current financial plan.
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