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Putting Goals-Based Investing Into Practice

March 27, 2019 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Putting Goals-Based Investing Into Practice

Are your investments on track to help you achieve your goals? Are you putting your money in the right assets for what you want to spend it on down the road? Does your portfolio correspond with your future plans?

It’s hard to answer these questions. Making investment decisions can feel pretty personal, because it involves thinking about what you want to do with your money in the future. It also means considering where you want to put your money, which could mean pinpointing companies and stocks you like, and avoiding stocks that don’t align with your worldview.

And of course, it’s frustrating that no one actually knows what’s going to happen in the stock market. There are predictions galore, but no return is guaranteed, and no stock is a sure bet. That doesn’t mean you should let confusion keep you from investing, though. Investing earlier can give your money more time to benefit from compound returns (which is when your investment returns make their own returns).

If you’re just getting started investing, use our beginner’s guide to investing and make sure you understand how goals-based investing works.

What Is Goals-Based Investing?

Goals-based investing, also known as goals-driven investing, is exactly what it sounds like; it’s an investment approach focused on your goals, rather than on market benchmarks.

Traditionally, investment strategy focuses on portfolio returns and measuring risk tolerance—i.e., how much risk you want in your investments. Those factors would then determine your investment strategy and portfolio makeup. Investments can make money in a number of different ways, including yielding interest or dividends which translate to earnings for the investor.

What you choose to invest in, and how much, is known as your asset allocation. And your asset allocation is determined by what you want out of your investment returns and your investment timeline.

For example, your investment strategy might be different if you’re going to retire in five years compared to someone who plans to retire in 25 years.

Goals-based investing, by contrast, measures your portfolio against your goals. That allows you to plan for different goals with different investment strategies.

The Benefits of Goals-Based Investing

The benefit of goals-based investing is that you can adapt your investment strategy to meet your actual needs. Many households have far more goals than just retiring—and have not, historically, had a way to plan for them.
The other benefit of goals-based investing is a bit more psychological.

A number of recent studies and research also suggest goals-based investing can have a behavioral impact on how you act—including, how invested you are in your investments and how emotionally you react to market fluctuations. Having a goal helps you focus your efforts.

For example, if you know you’re saving money for a down payment on a house, then you’re less likely to spend it on a new jacket or a fancy dinner. You’re also less likely to overreact to a dip in the market and sell off your assets when the price is low if you know you’re aiming at a certain goal down the road.

Goals-based investing also gives you more buy-in as an investor, and more of a say in the process. However, the danger of goals-based investing is you might not fully know what your goals are—or, more likely, what your goals will be down the road. Studies have found that we often fail to predict how much we will change in the next decade, and in turn, that can have a distorting effect on our goals and how we plan for them.

For example, right now, you might think you want a low-key retirement in a rural woodsy cabin, but what happens if you only invest enough to purchase a small cheap plot of land and then you change your mind in 20 years and need more money? That’s also why you want to re-evaluate your goals regularly and change your investing strategy as appropriate.

How to Put Goals-Based Investing Into Practice

The key to goals-based investing is figuring out short-term and long-term goals. In the short term, goals could include saving for a vacation or a wedding; something like a down payment on a house might be a medium-term goal; and setting aside money for retirement—whatever kind of retirement you envision—is perhaps the longest-term goal.

Some common financial goals include: saving up an emergency fund; accumulating enough for a large purchase, like a car or a trip; paying for your kids’ colleges; putting a down payment on a house; caring for elderly parents and other loved ones; and planning for retirement. These all require different strategies and different timelines.

The first step is to determine your goals and then take a realistic look at your current financial situation.

Talking to a financial planner can help you refine and clarify your financial objectives. Then, create targets and separate accounts for your various goals.

The last step is actually figuring out the investment strategy for each of your investment accounts. For example, you might have a different investment strategy for savings you’re going to use in five years, versus your retirement savings that you’re going to use in 20 years.

Talk to a Professional About Goals-Based Investing

SoFi Invest® uses a goals-based approach to make sure you’re getting what you want out of your money. After talking to you about your investment goals, SoFi financial advisors can help you find strategies that might work for your goals, age, income, and assets, among other factors. While portfolios are diversified over many asset classes, SoFi primarily uses ETFs in our automated investment platform.

Although you can implement goals-based investing on your own, many people also find it helpful to talk to a professional to help hone in on the right strategy—especially if you have multiple goals over different time frames.

If you’re ready to talk about your financial goals and figure out a plan to make them reality, talk to a SoFi financial advisor at no cost.


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The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The information provided is not meant to provide investment, tax or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory and automated services offered through SoFi Wealth LLC. An SEC registered investment advisor. SoFi Securities LLC, member FINRA / SIPC .

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