Goals-Based Wealth Management

Goals-Based Wealth Management

Goals-Based Wealth Management Tailors Everything To You

Following a goals-based wealth management discipline will suit you. Imagine paying a visit to your tailor and ordering a suit.  Your only instructions:  It has to be bigger than your co-worker’s suit.

That’s a ludicrous scenario, of course.  Everyone appreciates that a suit tailored for you will be the best-fitting suit for you. But this competitive and misfocused approach ‒ fixating on outperforming someone else ‒ adversely affects many people and how they invest their money.

Investment managers, investors themselves, and most financial advisors, obsess over the competition for outperformance with each other, the S&P 500, the Barclay’s Aggregate Bond Index, or any of countless other comparisons.  In reality, the only truly important benchmark is the achievement of our personal goals.

This is the insight that underlies the growing popularity of goals-based wealth management.  Rather than using investment performance versus the market and peers as the key success measure, goals-based wealth management focuses on thoughtfully translating your wealth into the life you want.

Fiduciary financial advisors like Intelligent Capitalworks have been advancing a goals-based wealth management discipline for many years.  Now, big industry players such as Merrill Lynch and Morgan Stanley are adapting their marketing to this message point.

Commonsense Essence of Goal-Based Wealth Management

Here are the key features of goals-based wealth management:

  • Identifying long-term goals,
  • Determining the funding requirements and timeframe for those goals,
  • Designing an investment portfolio to achieve the goals while taking the least possible risk, and
  • Evaluating investments by progress toward goals rather than versus market benchmarks.

That’s a very different, and much healthier alternative to the decades-long Wall Street sales pitch of “having your account managed just like their institutional accounts.”   By changing the “horse-race” mentality, goals-based investing can help you not only achieve your goals but do better in the market as well.

Without a goals-based wealth management discipline, investors take unnecessary risks in inappropriate investments in the pursuit of gains from arbitrary and unfocused investment strategies.  Too often, those investors panic and sell in turbulent markets as they find themselves out over their skis and unsure of the strategic importance of what they were doing.

Knee-jerk behavior such as buying and selling at the wrong times hurts investment returns and can push objectives such as a comfortable retirement further away in time.

Indeed, according to research firm Dalbar, for the 30-year period ending 12/31/2021, the average equity fund investor earned a 7.13% compound rate of return, underperforming the 30-year 10.65% compound rate of return of the S&P 500 Index by an average of 3.52% per year.  You can learn more about average investor underperformance in our post Investment Behavioral Mistakes.

Goals-Based Wealth Management Can Help Improve Your Investment Results

Goals-based investing aligns an investor’s perspective with the mission and refocuses attention away from peer manager and market index benchmark performance comparisons.  This greatly helps to reduce temptations to continually buy and sell investments to chase performance, which helps improve the odds of investment success.

Beating indexes isn’t the only distraction for investors, by the way.  There is also too much focus on the “active vs. passive” debate.  This too is beside the bigger point of successfully achieving your goals while minimizing the risks of failure.

When you recognize and understand that successful investing means achieving carefully thought-out goals, you can thoughtfully invest using active or passive strategies ‒ or a combination of both ‒ that are most likely to help you reach your goals within your timeframe and with as little risk as possible.

It’s no accident that goals-based wealth management gains traction in the wake of negative market environments. The upheaval and disruption to investor portfolios from turbulent markets has a way of driving investors to refocus and reflect on what really constitutes success.  Increasingly, the narrow pursuit of beating benchmarks continues to give way to the emphasis on what really matters:  Reaching life’s most important financial goals.

If you would like help developing a goals-based wealth management approach to your investing and financial life, we may be able to help.

Goals-Based Wealth Management.

It's just part of what we do.

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