Goal-based investing and why it matters
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Goal-based investing and why it matters

9 Mar
9 Mar

Why do we invest? The simple and obvious answer is to make lots of money. But let's think this through a little more — after all, you are giving up spending today in order to save and invest for tomorrow.

There must be some reason — a future purpose or goal — for this sacrifice. Its importance (or present value in economics terms) must outweigh the satisfaction of today's spending.

Your investments represent hard-earned money that you have set aside for a future goal, whether it is to buy a home, pay for your child's university tuition fees, or to receive an income in retirement. These are the reasons we save, so we should have a proper investment strategy that focuses on how to reach these goals.

This is known as goal-based investing. It matters.

What is goal-based investing?

Goal-based investing involves planning and investing towards specific personal life goals, such as saving for children's education or retirement.

This is different from a traditional investing framework whereby investors work towards outperforming a market average or benchmark, or to optimise risk and reward matrices.

When you invest with a defined purpose of achieving a certain goal, you can better identify:

  1. How much you need to invest;
  2. The best investment strategy for you; and
  3. The appropriate level of risk you should take to get you there.

We often compare our investment success against short-term market returns or our friends' portfolio performances. But although it's great if our portfolio beats the S&P 500 or our friends' investments this quarter, what does that really mean for us? Investors sometimes equate the volatility of their portfolios as risk, or perhaps even more complex indicators such as value at risk (VaR).

But our real "risk" is not about underperforming a benchmark index. It is in fact the possibility that we do not reach our intended financial goals, and how far we are from those goals. It is being unable to afford the home we want or retire with the lifestyle we desire.

Our goals and priorities tend to change as we progress through different phases of our lives — learn more about life-stage investing and financial planning strategies for new parents. It is also important for married couples to set common goals and align their financial paths forward early on in the relationship.

How goal-based investing helps us stay disciplined

Periods of losses are emotionally tough for any investor to handle. But when we focus on long-term goals, it allows us to be less distracted by short-term market volatility and noise.

It will help us refrain from selling down our positions or changing our investment strategy to one that reduces our chances of reaching our goals, and instead focus on sticking to our investment plans.

Losing money this month, this quarter or this year isn't as scary when we know that we don't need that money for another 5, 10 or 20 years, and that we are still on track to reach our goals.

Once we decide on the "why", we can determine the "how" and use our goals to drive our investment strategies and monitor the progress.

Carefully simulating or calculating the chances of reaching our goals, and taking appropriate action to achieve those goals is a critically important part of this process. This will lead to better strategies as to how much to save and when, where to place our money, what types of portfolios to choose, as well as how much risk we should take and when.

Example of goal-based investing

A screenshot of my Endowus investment goal for 3 month globetrotting ambitions
Source: Endowus, for illustration purposes only

This chart illustrates the scenario of someone who plans to start investing $1,000, followed by an additional $500 each month. He intends to use this money for his three-month sabbatical break that will happen around 10 years later. Based on the simulation, even if the financial markets are doing poorly, he will still have roughly $70,000, which will be more than enough to fund an extended sabbatical.

Imagine that you work and save diligently for 35 years. But by the time you are set to retire, your poor investment decisions in the past have led to a significant shortfall in funding your retirement needs. In fact, many Hong Kongers are expecting to work beyond 65 due to increasing financial demands and higher costs of living.

You will thus have to either work beyond your intended retirement age or make drastic lifestyle changes to reduce spending. Retirees may also wish to use the time-bucket strategy to manage their income.

Regardless of short-term volatility in markets, good planning should still help you get to your goals. By building appropriate investment portfolios and taking into consideration when we actually need the money or how we want to spend the money in the future, we can take and manage an appropriate amount of risk in the process to improve our chances of success.

Goal-based investing forces you to focus on what really matters, it is a holistic process to get you to where you want to go, or where you need to go.

Endowus espouses a core-satellite investment approach to build a holistic portfolio that's most suitable to an individual's personal circumstances, in order to meet their future goals. It's a good idea for all investors to begin with a meaningful asset allocation to core portfolios for their essential financial goals before extending their investment holdings to satellite positions.

To get started on goal-based investing and let your returns compound over time, click here.


Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. 


Whilst Endowus HK Limited (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.

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Neither the information, nor any opinion, contained in this article constitutes a promotion, recommendation, solicitation, invitation or offer by Endowus or its affiliates to buy or sell any securities, collective investment schemes or other financial instruments or services, nor shall any such security, collective investment scheme, or other financial instruments or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. This is not intended to be an invitation or offer made to the public to subscribe for any financial product or other transaction.

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