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With Market Volatility, Consider Goals-Based Planning Over Investment-Based Planning For Retirement

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For many years, you’ve likely been a member of the investment-based planning crowd. That’s the crowd that seeks the highest investment return or seeks to beat a benchmark.

Well, now, amidst all this volatility in the markets, might be the time to consider a different approach to your investment portfolio—goals-based planning.

Goals-based planning focuses less on annual returns and volatility and more on whether your investment portfolio will fund some future purpose or goal such as the life you want in retirement.

“With the goals-based philosophy it's really all about thinking: ‘What is this money for?’” said Michael Finke, professor of wealth management at The American College of Financial Services.

And with goals-based planning, Finke says you judge the success of the approach not on total return but whether it helped achieve your spending goal. What’s more, with goals-based planning you don’t necessarily care “how volatile your investments are.” Rather, you care whether you hit your target.

Finke also says it’s impossible to predict whether it’s time to jump back into the market. “I can't tell people, well now is the time to invest more in stocks or now is the time to invest less in stocks,” he says. “What I can tell you is to begin looking at your portfolio and thinking about how much money you actually need to live on and make sure that you've covered that basic amount before you take additional risk with your investment portfolio.”

In fact, asking “how much money do I need to live on?” is the most important question. 

And the answer to that question, Finke says, will help you define what portion of your investments are held in less risky assets like bonds or an income annuity.

Read The Philosophy of Goal-based Investment Planning.

And read this Retirement Daily article in which financial adviser Massi De Santis offers a step-by-step guide to identifying retirement goals and building a plan to meet them. 

For a more in-depth discussion with Michael Finke, listen to his podcast.

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