Why you should set up goal based accounts
We believe that every dollar has a purpose.
That’s a big departure from how most financial advisors think about managing wealth, so let’s unpack this a bit.
You have goals for your money. Even if you haven’t gone through the process of sitting down to think deeply about what you want to accomplish in the next year, decade, or over the course of your career, there are probably a few goals you can name right off the bat: buy a house, put kids through college, retire someday.
Each of those goals has a different time frame that you’re managing towards. You might want to buy a new house in the next 5 years. College might be 15 years away. And retirement might be 15 years after that.
Different time frames demand different approaches to investing.
You’re going to want cash in hand for that home purchase in 5 years, and your kids won’t want to wait a couple extra years to go to college. You don’t want to miss out on an important purchase because the market suddenly drops leaving you in the lurch.
Enter goal-based accounts
That’s why we recommend assigning every goal, every purpose to a unique account. This goals-based approach to investing allows you to be much more granular in your portfolio construction and makes it more likely that you’ll achieve your goal in the timeframe you expect.
You might be familiar with this approach from saving for retirement. There’s an explicit target of 65 that most people manage towards which aligns with the average retirement age in the US. For you to manage towards that goal effectively, you’ll want to move from an aggressive portfolio comprised of higher return, higher volatility stocks when you’re younger to lower return, more stable bonds when you’re older. You can do that because when you’re younger you have time to recover from any downswings in the market, but you can’t do so quite as easily if you’re older and counting on your savings for current income.
Remember that dream home we were talking about? The same thinking applies. If it’s 5 years away, we don’t want to be in an extremely volatile portfolio, but we still have time to seek a bit of return. If you want to buy in the next year though, we’re going to want stability, so the cash is there when you need it.
The job of an advisor is to help you manage the investments that will help you achieve those goals in the time frames you set. You want to earn as much as is prudent while still being able to write a check when the time comes. That’s incredibly difficult if you’re lumping everything into one account.
A better way to invest
Traditional advisors lump everything into one account because it’s easier on them. It saves them time and paperwork to keep things as simple as possible.
There’s a better way. We’re a different kind of financial advisor that’s focused on you, using technology to eliminate all of those old inefficiencies.
We’ve made it incredibly easy to set up as many goal-based accounts as you need with customized strategies for each one. We even automatically ratchet back risk as you approach your goals – whether that’s in an IRA for retirement or an account to buy a boat for an around the world adventure in two years.
The outcome of this approach is a more sophisticated approach to investing and a more transparent view into where you are and where you’re going. In other words, it allows you to invest every dollar with more purpose.