Goal-Based Investing

If we were to ask five people about major financial purchases they plan on making in the future, we’d probably get five different answers. Maybe one person wants to buy their first house, while another wants to save for their kids’ college educations. Maybe Person #3 wants to travel the world, Person #4 wants to retire in Aruba, and Person #5 wants a real-life, honest-to-goodness Batmobile. Hey, different strokes for different folks, right?

Well, the world of goal-based investing takes those different strokes into account when deciding on investment strategies. Instead of just saying, “Must make money,” goal-based investing says, “Must make money that suits what this client is trying to do with his or her life.” For example, if we’re not planning on retiring for another 40 years but we want to buy a house within the next five, our financial advisor might invest our money a little more aggressively now in an effort to get the bigger returns we want for that down payment. Or, if we’re less concerned with big returns now than we are with making sure we won’t run out of money once we retire, our money might be invested in ways that are less aggressive but provide more long-term stability, like we get with bonds and annuities.

But knowing what our goals are isn’t only helpful for our investment brokers; it’s helpful for us, too. If we can follow along with what our money is doing and how it’s helping us get closer to realizing our Batmobile dreams, it’s easier for us to get invested—pun totally intended—in the investment process. We’re more likely to keep our goal in mind, since it’s something tangible that we really want, which could lead us to make better financial decisions in our day-to-day lives.