Let’s start with a “big” question. 

Why do you invest?

Your first thought probably wasn’t padding your balance sheet or passing away with millions in the bank. 

Your mind likely traveled to one of your financial goals—funding your child’s education, buying a dream home, or securing your ideal retirement plan. When you focus on the “why” behind investing, you’ll never look at the markets or your portfolio the same again.

Concentrating on your “why” is a core tenant of goals-based investing.

So what is goals-based investing, and how can it make you a better investor?

Make Your Goals The Centerpiece of Your Plan

Like you have a centerpiece on your dining room table that sets the tone for the ambiance, your goals should be the centerpiece of your investment plan. Your goals drive your plan forward and help you make strategic decisions to get you there. 

If your goal is to put your child through private school, you’ll need to consider what mix of saving and investing can help you bring that goal to life. Perhaps you’ll cut excess spending and redirect more toward investment accounts, like 529 plans, brokerage accounts, Roth IRAs, etc.

Say you want to make a career change to an industry you find more fulfilling. In this case, you’ll need to consider your cash flow, retirement accounts, insurance, and more. 

Sometimes it’s challenging to think about your goals. It’s almost like doing an icebreaker with your team, and you can’t think of a “fun fact” to save your life. So instead of putting pressure on yourself by setting concrete goals, think about what excites you and brings you joy. 

From that list, you can begin to develop goals more naturally. Here are some additional goal-setting strategy tips. 

  • List your goals. The first step is to get crystal clear on what you want to happen and when. A goal is simply a future state or outcome that requires current and consistent action. One goal might be to retire by 60 or fund 50% of your child’s college tuition by 18. Achieving financial goals can be complex enough when you know exactly what you want, but it’s even more challenging when you’re not sure what you’re working for.
  • Prioritize: Take the goals you listed above and prioritize them by listing them in order of most to least important. Different goals may take priority at different moments in your life. Your priorities may shift, and we’re here to offer you support and guidance if they do.
  • Invest Accordingly:  Now that you have some direction, you must invest to help bring these goals to fruition. Given a financial need at a specific future date, what is the most direct path? How much do you expect to return on your investment? How long will you be investing for? How much do you need to invest regularly to achieve the goal promptly? Don’t worry; we can help you answer these questions!

Leverage Your Most Critical Asset, Time

High-level goal setting can feel ambiguous. One practical and tangible piece of investing advice is to focus on using time to your advantage. 

Time is the true ace up your sleeve, not a flashy trade or hot stock pick. It’s critical to understand the power of compound interest and time in the market.

The Value of Time, A Case Study

Let’s assume you want to retire in 15 years with $2,000,000 in portfolio assets to live off of. If you currently have $500,000 saved and assume a 6% annual return on your investment, you will need to invest roughly $2,660 per month over that 15 years. 

If, instead, you started this process 5 years earlier with a 20-year time horizon, you would only need to invest $750 per month!

This small example shows that the earlier you can establish your goals, the more manageable it will be to achieve them.

Build A Comprehensive Portfolio

Portfolio construction is a complex topic. With your goals serving as the north star of your financial journey, you can use other strategies to build the most robust portfolio for you.

  • Diversification: Spreading your investments across multiple types of investments that complement each other. For example, you might have large-cap US stocks, small-cap US stocks, and International stocks in your portfolio.
  • Asset Allocation: The unique blend of stocks, bonds, and cash in your portfolio. Factors like time horizon, risk tolerance, and risk capacity will impact this metric. A more aggressive strategy will have a high concentration of stocks, while a more conservative portfolio will likely focus more on bonds and cash.
  • Risk Capacity: How much risk can you withstand financially? Risk capacity is a financial measurement of your ability to weather market volatility. It has nothing to do with your emotions and everything to do with your financial circumstances.
  • Risk Tolerance: How much risk can you withstand emotionally? Risk tolerance is far more difficult to measure than risk capacity. It relates highly to the topic of behavioral finance and your emotional response when things go poorly or agreeably in your investing strategy. We can help you better understand your risk tolerance and help you build a long-term portfolio with this idea in mind. 

 A high-quality financial planner will help you manage these four tactics (and more) with an eye toward your unique goals.

Let Your Investment Plan Grow and Change With You

Your investment practices won’t stay the same throughout your life; you’ll constantly be managing different goals and opportunities. That’s okay! After all, we aren’t robots with 100% predictable futures.

To give yourself flexibility, invest in different types of vehicles. Common examples of various investment vehicles are retirement plans (i.e., 401ks and IRAs), taxable brokerage accounts, 529 plans, real estate, and charitable giving avenues (i.e., donor-advised funds). 

All of these accounts have different rules and tax treatments. If you are sprinkling your investments across all of these buckets, you’ll never be stuck relying on any single one. For example, if you put too much into a 529 plan and your child doesn’t go to college, you could be stuck paying hefty taxes and penalties to remove the money from the account. 

Let’s Create A Goals-Based Plan That Sets You Up For Success

At Chladek Wealth, goals-based investing serves as the nucleus of our financial planning practice. Every one of our clients gets a goals-based financial plan tailored to their specific needs and circumstances. Schedule a call with us today and see how we can help.



The contents of this article are for general information and educational purposes and should not be construed as specific investment, financial planning, tax, accounting, or legal advice. Please consult with a professional advisor before taking any action based on the contents of this article. 

All investment and financial planning strategies involve risk of loss that you should be prepared to bear. We cannot guarantee any investment performance whatsoever, and past performance is not indicative of potential future returns.