We talk a lot about goals-based investing around here, but what is it?
I am a visual thinker, so like to sum it up with a picture:
Goals-based investing sits at the intersection of Your World — your goals, your dreams, your financial situation, your values — and the Big World — the world of interest rates, financial markets, investing, stocks, and bonds.
This sounds obvious, doesn’t it? Surprisingly, it hasn’t been obvious in the world of financial theory and academia. It has only been recently that investment strategies have incorporated the things we associate with goals, like having a minimum amount of money within a certain period of time. Until recently, investment theory has ignored Your World.
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Goals-based investing is also more complicated. In addition to building an expertise investing money, we must also build an expertise in you. Because to properly invest money, we must first understand who and what we are investing it for. We cannot manage money in the abstract, we must manage it with your end goal in mind.
Just because it is more complicated however, doesn’t mean it isn’t worth it. Ultimately, goals-based investing leads to better outcomes: your goals achieved more often. In the end, that is what matters to us because that is what matters to you.
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