13 December, 2017

Goals and Financial Planning

Goals-based planning can help fulfill all your life milestones

A new year is a time for new plans. Too often, financial planning is solely focused on one goal: retirement. However, your journey to retirement is comprised of a series of goals that you need to fulfill along the way. Many of these goals may even have appeared in your 2018 New Year’s resolutions. Is that long-awaited kitchen renovation finally happening this year? Is your child university-bound in September? Or are you planning a big family reunion abroad?

Unlike traditional approaches to wealth management, goals-based planning shifts away from a “retirement-only” focus when planning your financial future. Instead, it focuses on funding your entire path to retirement on an objective-by-objective basis – as you work closely with your Advisor to discover, prioritize and optimize each of your key life milestones. Essentially, goals-based planning considers all aspects of your life and seeks to create the wealth required to achieve each objective.

A goals-based approach has many advantages. It allows you to:

Incorporate all your life events and stages

Your life is more than retirement, which is why your wealth plan should reflect this. A goals-based approach allows you to extend your focus beyond retirement and increase the probability that you’ll achieve the goals that matter most to you—whether those are short- or long-term in nature. Importantly, this approach is flexible enough to accommodate new developments that come your way, such as an inheritance or unexpected financial windfall.

Adopt risk-appropriate strategies tailored to each goal

Traditional retirement planning can often default to a “one-size-fits-all” approach. For example, an investor’s wealth plan might be based on a single investment portfolio that’s constructed based on one risk tolerance to fund all life situations. Naturally this approach may lead to some goals becoming underfunded because not enough – or too much – risk was taken. Goals-based planning tailors a different investment strategy to each of your goals because it recognizes that no two goals have identical importance or time horizons. This way, you are more likely to achieve your objectives and fulfill your dreams.

Measure success holistically

In investing, success is often measured by outperforming a benchmark, such as the S&P/TSX Composite Index or S&P 500 Index. But sometimes outperformance has no correlation to meeting your life goals. For example, if the market is down 15% and your portfolio is “only” down 10%, you beat the benchmark by 5%. In absolute dollar terms, however, as you have 10% less wealth, you may fall short of funding your home renovation. Losses can undermine your life goals – independent of how well your investments are performing relative to a given benchmark. Goals-based planning carefully manages risk for each goal and, in addition to traditional performance measures, success is evaluated by progress towards fulfilling your goals.

Tip: Make sure your life goals align with your wealth plan

Whether you want to take a dream vacation, undergo your long-awaited basement renovation or buy your next car, your advisor can help. Itemize your goals and bring this list into your next meeting. Your advisor will help draw a roadmap and set realistic targets that will help ensure all your dreams – including a sound retirement – can become reality.

It’s a perfect time to map out a goals-based strategy. Contact our office today.