“The Why” is far more important than “The How”

When tracking your financial goals it is easy to get caught up in comparisons. “If I invested here, I could have done better”; “If I put my investments in cash I would have staved off the market correction.” 

We don’t invest because we want to beat the market. We want to make our money work harder to improve our lifestyle, educate our children or save for retirement, we invest to reach a goal.

When I first meet with clients, the most important element is establishing why they are there. What are their goals? What would they like to achieve financially? 

When we start with the end objective and work backward to find appropriate investments, this is called Goals Based Planning.  

Thinking of planning this way, we move away from ‘beating the market’ and focus on tailoring our investments to reach our goals. 

Take the following clients for example.

Client Goal Considerations
Alex
Aged 31
Married
1 child on the way 
“I want to save $100,000 for a deposit on a house. I would like to buy a house in about 3 years time”Investment Horizon: Short
Liquidity Requirement : High
Brian 
Aged 58
Married
2 non dependant children
“I want to retire when I am 65. Based on my expenses, I need an income of $40,000 a year” Investment Horizon: Long
Liquidity Requirement : Low

Alex is at the beginning of her financial journey. Of course, she would like a high return on her money to reach her goal quicker but has a shorter time frame. She may not be able to ride out a downturn in the market. She also needs to have the money fairly liquid in case she finds a house. 

Brian is more advanced in his financial plan. He does not have any immediate needs for his investment, allowing him to have a longer investment timeframe. His future retirement goal also means that he doesn’t have a high liquidity need. 

These investors have two very different needs. They both would like to get a high return on their investment, as anyone would. However, putting a goals-based lens over their investments, we construct a portfolio to meet their needs.  

So although Alex is younger than Brian, she has a short investment horizon and a need for liquidity. Therefore we would look at more defensive assets such as cash and bonds for Alex. On the other hand, Brian’s goals allow us to look at more growth type assets such as equity and property. 

By starting with our goal, it gives us a framework to construct our portfolio. We don’t want to introduce risk to an investment when we don’t have to.  On the other side, we may have to look at more growth-type assets to reach your goals.  If you would like to discuss your financial goals and how you are tracking to meet them, contact us for a No-Obligation Discovery Meeting.  

Disclaimer

Authorised Representative of RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429. The information provided in this document, including any tax information, is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.

Discovery Wealth Advisers

Author Discovery Wealth Advisers

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