Findex: A change of focus – investing for your goals

Matt Tod, Associate Partner, Wealth Management.

Matt Tod is associate partner, wealth management, Findex

OPINION

Christmas this year seems to be approaching fast. With three kids’ birthdays, two dance recitals, and two school break-ups to get through before I clock off for the year it seems my time is becoming a rare commodity.

However, I am already thinking of the jobs I need to get done over the break: painting, gardening, de-cluttering and, of course, reviewing my financial plan.

I find the summer break to be the opportune time to visit my financial plan. I like to ensure my family is looked after and my wife and I are on target to meet our retirement goals. If not, then adjustments need to be made. These can be made to our saving rate, spending or a reassessment of our goals.

Investing to achieve goals gives focus and discipline and can help provide measurable outcomes to what you are trying to achieve.

Goal-based investing is not the traditional approach to investing, which is typically focused on return outcomes compared to peers over a given period. Goals-based investing is different. Success is measured on how likely the investor is to meet their personal and life goals.

Consider an investor who wants to retire in two years. He needs the capital he has accumulated to fund his retirement, but a 10% fall in his portfolio over the next two years will compromise his goal. If markets have a significant fall and his portfolio falls by 25% compared to a peer portfolio fall of 30%, the investor still cannot meet his retirement goal. It is cold comfort for the investor that his portfolio outperformed its peer group.

Goal-based investing re-frames this success based on the client’s needs and goals. If the investor’s main goal is to protect wealth for retirement, and to help grandchildren fund education, the investor’s investment strategy would be more conservative to reflect these goals and protect the capital from a market downturn.

In this example, if the investor was more focused on their goals, then a more conservative investment strategy would be employed to minimise the drawdown on the portfolio.

Goal-based investing creates increased commitment from the investor to their life goals, allowing them to participate in tangible progress. It also reduces impulsive decision making and overreaction based on market fluctuations.

So, here’s your holiday to-do list:

1. Spend time with friends and family,

2. Get those jobs done,

3. Start a goals-based financial plan.

I encourage you to write down two or three short- and long-term goals, then make an appointment with a financial planner to quantify these goals and begin putting a plan in place to ensure success.

A financial plan does not need to be complex, daunting or a time-consuming process. It needs to be personalised to you and what you want to achieve. Focussing on achieving goals rather than return-based outcomes will make for a more enjoyable retirement and more time for items 1 and 2 on your holiday to-do list.