Archimedes Finance

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Goal-based investing

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.

Dangers of Winging it

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:

  • Since the outcome is something tangible to strive for, financial goals give us a direction and purpose, making it easier to stick to a budget and stay focused on the long-term. 
  • Our goals are important to us, so they provide the inspiration and motivation needed to stay disciplined as investors.
  • Having goals keeps us accountable to ourselves or others for our progress, ensuring we remain on track.
  • Goals give us something to celebrate! We’ve accomplished something great when we hit significant milestones or have reached our destination.

understanding Tradeoffs

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.

Stopping points along the way

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.

Glossary

What is Goals-based investing?

When we invest in the financial markets to fund specific objectives rather than generate the highest possible return.

At Archimedes, our goal is to make investment literacy accessible and free for everyone.

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