Many people begin investing by asking which product to buy. Goal-based investing begins one step earlier, with a different question: what is this money for, and when will I need it?
Why start with the goal
A goal gives an investment a deadline and a size. Money needed in two years has different requirements from money needed in twenty. Naming the goal makes it easier to decide how much risk is sensible, and how much volatility you can live with before the date arrives.
The building blocks
A simple goal-based plan answers four things: the amount needed, the time available, the amount you can set aside regularly, and how comfortable you are with ups and downs along the way. From these, a suitable mix of investments can be discussed.
Measuring progress differently
Instead of comparing your portfolio with the latest headline, you compare it with the path your goal requires. This can reduce the urge to react to every swing in the market.
A word of caution
Any plan relies on assumptions about returns and inflation. Markets do not follow a straight line, so goals should be reviewed periodically and adjusted when life changes.
This article is general education and is not personalised financial advice.
Important information
This article is for general education only. It does not consider your personal objectives, financial situation or needs, and is not investment, tax or legal advice. Investments are subject to market risks. Read our risk disclosures.