What Is Goal-Based Investing And How Does It Work?

Tolu Gabriel
Tolu Gabriel November 19, 2021
Updated 2021/11/19 at 12:22 PM
What Is Goal-Based Investing And How Does It Work?

What is goal-based investing? Goal-based investing is a form of investment strategy that achieves personal financial goals through investing.

With this method of investing, every investment you make is linked to a purpose connected to a goal. It is focused at ensuring discipline while investing.

You may have been involved in several market-linked financial instruments like mutual funds, shares or stocks, fixed deposits, real estate, and public provident funds, but when you don’t link these efforts to a specific goal, your investment really has no purpose or projected duration to achieve.

You will be able to prevent any unpredictability by involving in goal-based investing.


How Does Goal-based Investing Work?

Goal-based Investing has been used for sometime. It can be described as a more sophisticated method of how household finances are usually managed. 

People categorized funds in multiple envelopes to achieve different goals. One envelope could be for rent, another for utility bills, repairs, and so on, and anything else could be reserved for vacation. So if an unplanned expense surfaces, it will never be deducted from utility bills or rent envelope, rather, it could be possibly withdrawn from vacation envelope.


Goals-based investing: a targeted allocation

Many investors find this pattern of investing very attractive. So instead of having a single spot for all your projected goals, you can now put them in several goal-oriented buckets. But then, this method requires additional work with asset allocation, reporting, and monitoring. You can however have a trusted private wealth manager to provide you with professional support which can turn out pain-free.

After concluding on a fitting goal-based investing method, your investment counselor can help you with having good knowledge of your financial goals, short term needs, personal situation, and others such as philanthropic projections and estate planning.

Working with the counselor, you can further attribute a risk level and time horizon to a specific goal and create the most suitable and fitting portfolios to help you achieve projected goals. The turnout will be distinctly personalized portfolios, reported and managed individually to help in attaining set goals. 

There are some vital questions that investors are expected to ask themselves for each projection. Check out below.


  1. What are your savings goals?


  1. When do you intend to make use of your savings?


  1. Are you determined to add to your current savings, if yes, how do you intend to?


  1. Do you think it is possible you’ll need to access your savings before attaining your long-term projection? If yes, then picture out how it may turn out.


  1. Would you be in need of money from your investment? If you will, how much will it be and over what period of time?


After concluding this checklist with an advisor for each goal, then work on a different asset mix for the various buckets. Your advisor will then further consider the return rates you need to attain the projection. If it doesn’t appear feasible, then you may need to reduce your expenses or retire later.

Goal-based Investing is simple and largely applicable to high net-worth investors who have specific projections. It creates room for investors to put in place risk parameters for different goals – serving as a yardstick for determining real goals instead of just market benchmarks.

While it is very crucial to get risk or return balance, it can still be achieved by keeping the investor’s overall goals in mind. Understand the financial goals and unique circumstances of an investor and also bear in mind that they generally change and should be reassessed periodically, especially as the market continues to change.


 Challenges of Goal-Based Investing

Goal-based Investing can be very helpful, however, it has its own hiccups. For instance, it can be hard identifying financial goals. Especially when you have to prioritize a number of projections that you need to address at varying points in your life.

You may not also have it convenient to balance it with paying down debt such as mortgage or student loans.

With some cash to invest, investors are often either looking at preparing for their retirement at a specific age, buying a new home, or sending a child to college. You’ll have to be clear on how much will be used in achieving them and also put the risks into consideration. 

For instance, if you are considering acquiring a New Jersey home for $500,000 and want to put down 20% of the amount, you will need $100,000 to achieve it.

If you are looking at a $30,000 annual fee for your child, you may need to target $120,00 as savings for their graduation from high school. Different investment types may help to make these projections a reality.

Goal-based investing makes you prioritize the most crucial things to you. This may not really be what is the easiest on your list, but it helps to put forward what matters most, define your goals, map out your strategy, and estimate your needs.


How To Start Goal-Based Investing

To get started with Goal-based Investing, first take record of your finances. Check how much debt you have to pay – is your debt huge? – Do you have an emergency fund in reserve? Can you afford to lose your investment?

Once you have settled issues with your finances, then you can kick off your goal-based investing. 

Draw out definite goals you have in mind, do extensive research to learn additionally about the diverse investment types and the starting capital. You can meet your future needs and goals by creating a balanced portfolio through stocks, mutual funds, bonds, exchange-traded funds and others.

Decide if working with an investment broker or financial advisor is most ideal. They may also help out with a plan to help you invest steadily monthly or yearly.


In conclusion, ensure to have a constant review of your investment portfolio from time to time while planning your financial goals. Make required actions towards rebalancing your portfolio where necessary.


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