A goals-based approach targets financial planning to meet objectives throughout life.
How do you measure the success of your investment strategy? Most people look at their returns: five per cent is better than three per cent. But investment returns don’t tell the whole story. Whether or not an investment strategy is successful depends on whether it delivers the money the investor needs at the right time, allowing them to achieve specific goals.
That’s the aim of a goals-based approach to financial planning. Rather than chasing returns on investments, this approach identifies the amount of money required at different times throughout an investor’s life and structures separate investment portfolios, alongside debt management, insurance, tax and estate planning strategies, to help ensure the investor has that money available when it’s needed. Then, instead of checking returns against the markets, the investor evaluates success by measuring their progress towards each goal.
In addition to redefining success, a goals-based approach also redefines risk. After all, the true risk for an investor is not that an investment portfolio loses money this year; it’s that the investor falls short of their savings goals and can’t do what they had planned to do.