Advantages to Goals Based Investing

Updated: Jan 11

So we kinda left off on a cliffhanger in regards to our last post about goals based investing. If you haven't already, make sure to check that one out before reading this one.


Trust us, it'll make a lot more sense. You don't want to be like the ladies below who are now blaming their poor portfolio manager.

So What Are the Advantages?


1)a personalized investment strategy

2) increased commitment

3)a reduction in impulsive decision making that occurs from the inconsistency of the market.


Why Are These Considered to Be Advantages?


A personalized investment strategy is important in that it tailors a client’s goals, their risk, and time horizon to accommodate their personal lifestyle. A 2017 study done by Segment revealed that personalized recommendations lead to higher revenues. Therefore, with the lure of personalization and the build-up of progress, individuals will experience an increased amount of commitment to their goals. Because clients will feel little to no pressure in beating the stock market or making sure that their investments do not dip below a certain index, they will have no incentive to act rashly.


How is this Different from Traditional Investing?


Because traditional investing is basic. JK.

GBI differs from traditional investing since it measures success based on whether or not the client achieves its goals rather than how well its investments or returns have done against the market.


Explained in a different way, risk is defined as a failure to meet or to fund a specific goal in GBI. But in traditional investing, risk is measured by volatility. For example, an individual who is utilizing GBI will perhaps set three goals that involve paying off their loans within an identified time horizon: paying their children’s college tuition in 10 years, their retirement in 25 years and the mortgage to pay for a new car in 3 years. On the other hand, someone who is embarking on the traditional investing path will have a single portfolio and consider the highest rate of return that they can receive at their given amount of risk.


GBI has gained popularity within the wealth management industry within the last years and the reasons for it are ever so appealing. It originated in an attempt to minimize risk while also combining behavioral biases, such as mental accounting, in a framework to meet an investor’s goals in their allocated time horizon.


Will you be tempted to try out GBI now? Let us know! If so, why? If not, why?


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