Welcome to this week’s newsletter.    

Many people who invest, tend to do so in the traditional manner of focusing on the returns or growth in their investments and assets. Whilst that approach is commendable and has served many investors well, in recent times; wealth managers are now advising their clients differently.

Investors are increasingly being advised to use a relatively new approach called goal-based investing. This investment strategy, focuses on the achievement or attainment of identified goals such as saving for children’s education, buying a house or retirement amongst others.

Goal based or driven investing can be described as the use of financial markets to fund identified goals within a specific period of time.

As easy as this strategy sounds, it requires precision in determining the relevant investment vehicles to use as well as the amounts to invest per time. This is because goal-based investing strives to align future expenses to future sums.

This approach involves:

  • Identifying all your goals
  • Confirming the time frame you have
  •  Calculating the future value of this goal. This is necessary to take care of inflation.
  • Choosing an investment amount – lump or monthly sum
  • Picking the right investment vehicles to use
  • Determining the mix of these investment vehicles

The major difference between the traditional method and goal-based investing is that the former analyses success based on the returns achieved or yield earned; whilst the latter pays attention to how well an investor is able to meet their identified goals.

Goal based investing is superior because we all have different financial goals, we want to achieve over different time frames. For instance, going on a world cruise or buying a new car can be short term goals whilst buying a house can be considered medium term and children education can be seen as long term (depending on how early you start).

With goal-based investing, investment choices are made using the individual’s needs and goals and not based on his or her risk tolerance. This in essence, means a risk adverse investor may be convinced to invest in high-risk assets such as cryptocurrency as part of her children’s education fund. Likewise, an investor with high risk tolerance nearing retirement will be advised to invest more in low-risk assets such as fixed income.

It also means that an individual who is starting early, can use a more aggressive investment plan compared to an investor who is closer to retirement. This is because the early starter can absorb or accommodate a higher margin of error than the older investor.

Goal based investing ensures that investors are able to track their progress using tangible milestones per specific goal. For example, an investor saving for retirement can do an annual check using the number of years left. This in turn means the investor can afford to exercise patience instead of reacting to market fluctuations on the short run.

For those interested in knowing more about goal based investing, the Smart Stewards Academy has got you covered with variety of courses. But if you are interested in a one-on-one customized session with Sola Adesakin, you may use this LINK to book a convenient time.

Please be reminded that the COVID-19 virus is still spreading around the Nigeria especially in Lagos State and that more importantly, the vaccines are currently still unavailable in the country.

As such, we must continue to take personal responsibility for ensuring our safety and those of our family members.

Here’s wishing us all a wonderful week ahead.

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