There are many different approaches to investing. At Good Capital, we live by a goal-based approach. Goal-based investing means putting your money to work in order to accomplish something specific in your life. Your goal may be to buy a house or start a business. Practicing a goal-based approach to investing will increase the probability of a successful outcome while simultaneously decreasing your financial stress.
How does this magic work you might ask? Goal-based investing doubles down on your commitment to your life goals by aligning your finances with the rest of your life decisions. Sounds so obvious once you think of it, and that’s why it works. By thinking about your investments from an overall life standpoint, you are less likely to make impulsive decisions with your money. That’s a win-win!
So how do you take on this investing approach? We’ve broken it down for you into 4 easy steps:
Define your goal.
What are some examples of a good goal? Investing for retirement, investing for a downpayment on a house or investing for your child’s education. These are all well defined, specific investment goals.
What are some examples of a bad goal? Making more money. This goal is much too broad and unspecific.
Define your time frame.
When will the goal happen? Under 1 yr, 1-3 yrs, 5-10 yrs, 30+ yrs
Match your investments with your timeframe.
Shorter-term goals pair well with lower risk portfolios that consist of stable investment assets such as bonds
Longer-term goals go well with higher risk portfolios that consist of more unpredictable assets such as stocks
If your goal moves from long to short-term, you can adjust your allocation from riskier to less risky positions or vice versa.
Stick to your goals.
The prices of your investments will fluctuate. Sticking to your goals potentially eliminates some of the emotional stress that can be associated with investing. While a dip in your portfolio value may feel painful, it ultimately doesn’t matter if it’s not yet time to cash in on your goals.
Practicing a goal-based approach to investing can alleviate stress and increase the likelihood of achieving your financial and life goals. That’s what we’re here for. If you found this content to be helpful, you can read our other blog posts here.