In the world of personal finance, there’s always a need to create processes that increases the potential for success. So is the case with goal-directed investing.
Goal-directed investing isn’t a new term or process – nor is it a new idea. However, the approach you take to integrating this investment methodology can greatly impact your success. The key is to take into account the nature of your goal (time frame, amount needed, and priority) and then implementing investment strategies that appropriately meet your goal.
Goal-directed investing in motion:
| Short-term Goals | Intermediate-term Goals | Long-term Goals | |
|
Must-haves |
Emergency fund | Child’s college tuition | Retirement expenses |
|
Wants |
Annual vacation | Start a small business | Dream house fund |
|
Discretionary |
New car | Remodel home | Long-term care fund |
Goal-directed investing is a different approach to investing as it recognizes what’s important to you as an individual and measures success by the amount of progress you make towards achieving each goal. Whereas, traditionally, investors have a narrow view of success defined solely by investment management and performance. This view gives way to the influences of human biases and behaviors, which are the hallmarks of bad decision-making in the investment world. Making investment decisions that are reactive to market performance – good or bad – can lead to decisions based on market fear, uncertainty, or biases which can negatively impact long-term financial success.
Aligning your investment strategies to meet your goals, provides an efficient means for addressing security (i.e., emergency situations), long-term financial goals like future college costs, minor goals such as vacations, retirement nest egg building, and non-specific but general investing to build wealth. When your investment strategies meet your lifestyle needs, you create a financial philosophy that improves your odds for long-term success.