Become a better investor
Lesson in Course: Investing basics (beginner, 3min )
It’s easy to get off-track without a map. So how do we invest without getting lost?
Like any good trip, we need to know where we’re going before figuring out how we’re going to get there. Goals-based investing is when we invest in the financial markets to fund specific objectives instead of trying to generate the highest possible return.
This helps us to be able to meet our needs, live the lifestyle we want, and reach our highest aspirations.
Without goals, our investment decisions are aimless, and we’re more likely to be disappointed by unrealistic expectations of what investing is or what it can do. We’ll also be more likely to make rash decisions, causing mistakes that can greatly set us back.
Here are some benefits of goal-based investing:
There isn’t one ideal strategy for investing, and there isn’t a perfect investment either. One isn't better than the other, and there aren’t objectively “good” or “bad” investments. They all have their advantages and disadvantages, making it difficult to make investment decisions unless we have goals.
Our goals create destinations that we can use as a guide.
Some goals focus on growing our portfolio’s value, some aim to generate income that we can live on, and others look to minimize taxes owed. Each of these goals will lead to a different set of investment strategies - as different types of assets and accounts will be better suited to achieve each of these goals. Picking the "best" strategy is about choosing the one that gives us the highest chance of achieving our objective.
The video below provides extra depth on goals-based investing:
We should start thinking about what our goals are. Think about what we want to do in life, why we want to invest, and what we are investing for - it will make investing easier. This is highly individual, and the lesson about creating investment goals will walk us through some steps. It’s normal for our plans to change over time, but our strategy and investments will change with them.
When we invest in the financial markets to fund specific objectives rather than generate the highest possible return.