Invest to Achieve Specific Goals
Traditional portfolios are designed to achieve maximum returns for a given amount of risk. However, getting more personal by adopting a goals-based approach can deliver performance tailored to your specific objectives. Put your goals front and centre in three steps.
1. Identify what you’re saving for
Investors often identify broad saving goals such as “retirement,” “education” or “travel.” But the concept of “SMART” goals applies to building wealth as much as to other aspects of life. A SMART goal is specific, measurable, achievable, relevant and time-bound – and making your saving goals SMART can help you get the results you want.
For example, rather than saving for “home renovations,” you may be saving to redo your kitchen (specific) with a $50,000 budget (measurable) by investing $800 a month in a balanced portfolio (achievable) to improve your lifestyle (relevant) in five years (time-bound). The more details you can fill in related to your goals, the better.
2. Plan to make it happen
It’s likely that each of your goals has a different time horizon (short-term, medium-term or long-term). Your goals may also be associated with different risk tolerances. When assessing risk tolerance, consider the impact if you do not meet a goal. What would be the consequence, for example, of falling several thousands of dollars short of post-secondary education costs for a child? If the impact is high, your risk tolerance will likely be lower. Start building your list of goals, time horizons and risk tolerances. Then discuss it with your advisor, who can work with you to split your investments into mini-portfolios – each with a unique asset allocation designed to meet a single goal or a small group of goals with a similar time horizon and risk tolerance.
Mini-portfolios help you avoid the possibility that a short-term, lower-priority goal (say, a family vacation in two years) will skew your entire investment portfolio towards a more conservative asset allocation that dampens potential performance and makes it less likely that you will meet a long-term, higher-priority goal (say, retirement in 30 years).
3. Measure your success
There’s another benefit: mini-portfolios make it much easier to assess how well you’re doing. You can periodically check in to see how much progress you’ve made towards each goal and whether you’re on track to meet it. This is a real-world measure that’s much more relevant to you than comparing performance to a market benchmark.
Your Raymond James advisor can help you develop and monitor a goals-based investment plan. Then, with coordinated investment strategies in place, you can ride out day-to-day market fluctuations knowing that your investment plan is carefully structured to meet all of your goals.
What does a goals-based approach look like?
With a goals-based approach, each mini-portfolio can have a different asset allocation within your overall risk tolerance. For example, instead of one all-encompassing portfolio with 60% equities and 40% fixed-income, you may have:
A $800,000 retirement portfolio with a 30-year time horizon that has 70% equities and 30% fixed-income
A $200,000 education portfolio with a three-year time horizon that has 30% equities and 50% fixed-income
A $50,000 renovation portfolio with a two-year time horizon that has 20% equities and 80% fixed-income
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