Investing for your future – A tale of two investors on putting your goals first

A goals-based investment approach isn’t focused on ‘beating the market’.
It’s about tailoring your investment choices to meet your personal goals.

Performance comparisons are unavoidable in the investment world. Every day we see investment managers who measure their success by how much they’ve outperformed the market or their peers over a given time period.

Not only are these figures bland and disconnected from any real context in the mind of readers, the problem with this is that most people don’t invest simply because they want to beat the market. Most people choose to invest in order to help achieve a specific goal, whether that’s simply to make some idle money work a little harder, or perhaps to fund a better level of education for their kids or to prepare themselves for a more comfortable retirement.

Starting with your end goal in mind and working backwards is a far more effective approach to investing. That’s essentially what a goals-based investment approach does.

To illustrate this, consider a tale of two investors

4Tale of Two Investors

These two investors have very different circumstances:

  1. Harriet is aged 33 and is looking to save $100,000 to put towards a house deposit in the next 2-3 years.
  2. Carla is retiring soon and looking for an income of $60,000 every year for the next 20 years.

These two women have very different investment profiles. For example:

  • Harriet has a shorter timeframe, so she may not be able to take as many risks with her money (bearing in mind she may not have time to wait for markets to recover from an unexpected downturn). Harriet also needs to make sure she will be able to access her entire lump sum at once, possibly at short notice when she finds a home, so liquidity is an important factor for her.
  • Carla has a much longer timeframe, so she can afford to invest in higher-risk assets knowing she has more time to recover any short-term losses. Because she needs income, her investments will be geared towards those that pay high levels of interest or dividends. Liquidity is less of an issue for Carla as she is likely to leave the bulk of her money invested for the long term.

The investment strategies for Harriet and Carla will look very different. But one thing both women have in common is that they have a specific goal that doesn’t relate to any particular market benchmark or index.

This important change of mindset can help investors become less distracted by what the markets are doing in the short term. It also provides something more personal and more meaningful to measure the performance of your investments against.

After all, you’re investing to achieve goals, not returns.


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