While some investors strive to beat the market, others use personal goals to measure their success. Goals such as:
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:
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:
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.
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SOURCE: JP Morgan Guide to College Planning 2025
In addition to helping minimize your tax liability, a goal-based investment strategy allows you to:
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.
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Source: JP Morgan Guide to College Planning 2025
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
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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.
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.
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