What Is Goal-Based Investing and Is It Right for You?

While some investors strive to beat the market, others use personal goals to measure their success. Goals such as:

• Paying for a child’s education
• Purchasing a home 
• Retiring early

This alternative strategy is called “goal-based investing.” Instead of trying to guess the next hot stock, investors work with a wealth manager to choose investments that will help them achieve their financial goals.

Keep reading to learn about:

• How goal-based investment planning works
• Example strategies for different goals
• The benefits of goal-based investing vs. traditional investing

Goal-Based Investing vs. Traditional Investing

Goal-based wealth management is a more personal and practical way to manage your money. Instead of putting all your money in one account, you separate investments into different “buckets”. Each bucket has a tailored mix of investments based upon when you’ll need the money and what you plan to do with it. For example:

Let’s say you have a neighbor, Casey, who wants to retire in the next 12-18 months and buy a vacation home. Casey is a traditional investor who takes pride in beating the market. 

In our hypothetical situation, the S&P drops 25% year over year. Casey’s portfolio only loses 15% of its value — “beating” the market — but it’s still a huge loss. Now, Casey has to choose between retiring early and buying that vacation home. 

If Casey had a financial advisor using a goal-based investing approach, Casey’s money for these short-term goals would have most likely been sheltered in less volatile  investments, such as:

• CDs (certificates of deposit)
• A money market account 
• Other short-term fixed income products

Why Goal-Based Investment Strategies Work

Buying a stock or ETF that quadruples in value is exciting, but it’s not necessarily a reliable way to fund your hopes and dreams. Also, if it is held in a taxable account, it may not be the most tax-efficient way to save for a specific goal. 

The chart below compares saving for a child’s education in a taxable brokerage account vs. putting money in a tax-advantaged 529 savings account.

Click to view a larger image
SOURCE: JP Morgan Guide to College Planning 2025

In addition to helping minimize your tax liability, a goal-based investment strategy allows you to:

• Manage risk
• Use investment tools optimized for your goals
• Stay focused on what matters 

If you have a retirement savings account, such as a 401(k), you’re already using a goal-based investment strategy. The key is to stay focused and avoid dipping into your retirement savings for other needs, such as education expenses. Early withdrawals from your 401(k) can be toxic.

Click to view a larger image
Source: JP Morgan Guide to College Planning 2025

How to Get Started with Goal-Based Investing

After identifying your goals, the next step is to put them into the appropriate bucket. Here are a few examples:

Short-term (0-4 years): down payment on a home, big wedding

Medium-term (5-10 years): child’s education, second home, starting a small business

Long-term (10-15+ years): retirement, leaving an inheritance

Click to view a larger image
Source: JP Morgan Guide to Retirement 2025

A wealth manager can help you choose the best investment opportunities. For short-term goals, it’s important to keep your money in low-risk investments such as CDs and money market funds. For longer-term goals, growth-focused stock portfolios  or ETFs may be better because you can ride out short-term market dips.

Customer Success Story: Early Retirement

A few years ago, one of our clients told us he wanted to retire early. He was tired of working for a paycheck and wanted to spend more time doing the things he loves. This client had about $2 million in stock and stock options through his employer, a Global Fortune 500 company. 

We helped him diversify his portfolio so his retirement dream wouldn’t live or die based on his employer’s business decisions. He retired a few years later. 

Let our experienced team help you achieve your goals. Contact us online or give us a call, (415) 541-7774. 

Related Reading:

• Financial Planning for the Sandwich Generation
• The Benefits of Investing Early for Retirement (charts)
• Retirement Planning for Singles and Single Parents
• Tax-Smart Strategies for Gifting Money to Family and Donating Stock to Charity
• How to Leave a Meaningful Legacy

DISCLAIMER: 

Assembly Wealth (“Assembly”) is an SEC-registered investment adviser; however, this does not imply any level of skill or training and no inference of such should be made. The opinions expressed herein are as of the date of publication and are provided for informational purposes only. Content will not be updated after publication and should not be considered current after the publication date. We provide historical content for transparency purposes only. All opinions are subject to change without notice and due to changes in the market or economic conditions may not necessarily come to pass. Mention of a security should not be considered a recommendation or solicitation to purchase or sell the security, and any securities mentioned may be held by Assembly for client portfolios. Information presented represents an opinion as of the date published and should not be considered an investment recommendation. 

Assembly does not become a fiduciary to any listener, reader or other person or entity by the person’s use of or access to the material. The reader assumes the responsibility of evaluating the merits and risks associated with the use of any information or other content and for any decisions based on such content.

Individuals should always consult with their own qualified tax professional (and legal advisor, if applicable) regarding their specific circumstances.

Testimonials appearing in this article reflect the experiences of specific individuals and may not be representative of all clients. No compensation was provided for these testimonials. Testimonials are not indicative of future performance or success.