Conquer financial goals with goals-based investing

Map out and meet your investment goals

Adam McCullough, CFA 14 March, 2019 | 2:00PM

Investing anything--time, effort, or money--sacrifices short-term reward for a long-term payoff. Sometimes investors lose sight as to why they’re investing. Goals-based investing offers a useful structure to map out concrete investment goals, prioritize them, build portfolio to meet them, measure progress against them, and make adjustments (if necessary) to stay on track.

Setting specific and challenging goals improves performance by increasing motivation[1]. The benefits of setting goals extend to investing by improving investor behavior. Goals-based investing forgoes an optimally efficient portfolio for the potential to improve investor behavior. A plan that you can’t stomach isn’t worth pursuing. Morningstar’s Head of Retirement Research, David Blanchett, found that a goals-based framework for financial planning led to a 15% increase in utility-adjusted client wealth.

An advantage of goals-based investing is that you can tailor a portfolio specific for each goal, prioritize them based on the impact of not meeting them, and monitor progress of meeting that goal. This differs from traditional portfolio management, which views all assets holistically. Modern portfolio theory dictates that assets should be viewed together to take advantage of their varying correlations to build the most efficient overall portfolio.

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About Author

Adam McCullough, CFA

Adam McCullough, CFA  Adam McCullough, CFA, is a manager research analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers passive strategies.