Hitting the Bull's Eye: How to Invest for Success by Keeping Your Targets in Sight

03.18.2019 - Bryan Kirk


Your goals are important. So is the investment strategy that helps you achieve them. In this Q&A, Director of Financial Planning and Trust Counsel, Bryan Kirk, and Head of Asset Allocation, Viraj Patel, discuss how “goals-based” investing brings the two closer together to help you preserve and grow your wealth.

Q: What does it mean to insert the words “goals-based” before “investing”?

BRYAN: Your goals should guide everything you do. Why do something if it isn’t aimed at getting you somewhere you want to be? In terms of investing, the same concept should apply. By saying your investing is “goals-based,” it’s simply emphasizing and making explicit what should always be your focus. Our starting point is always understanding your goals because without that we can’t effectively frame anything we might do, whether it involves investing, helping with your estate plan or even serving as a trustee or executor.

RAJ: To me, “goals-based investing” is an acknowledgment that your investment strategy must always be personalized, starting with your desired objectives. The information we gather about your financial life serves as the foundation of your Investment Policy Statement (IPS), which is a document we create for every investment management client in the earliest stages of our relationship.

An IPS is designed to synthetize your circumstances into the objective criteria around your time horizon, liquidity needs, tax status and special considerations that provide the basis for your investment objective and asset allocation, balancing your ability to take risk and expected return. It provides your portfolio manager with guidance in the investment decision-making process and tells you exactly how Fiduciary Trust will manage your portfolio.

BRYAN: And that investment objective then leads us back to your goals. Your goals and circumstances shape your investment strategy because your investment strategy needs to be targeted to fulfill your goals. 

For example, if you are funding a trust designed to pay for the education expenses of your children and grandchildren, we consider the expected time horizon and liquidity needs of the trust, determine the appropriate investment strategy and show you how that strategy will fulfill the goal of the trust based on current expectations.

RAJ: Using simulations and other modeling techniques, we can calculate the probability of success for different investment strategies, and display that information for you in a way that is easy to understand.

Q: When you link goals and investing, what type of goals are you talking about?

BRYAN: These are financial goals, which typically change over the course of your life. They might include buying your first home, paying off debt, maintaining an adequate level of liquidity, living comfortably in retirement, funding a grandchild’s college education or leaving behind a charitable legacy for many generations to come. 

As we achieve financial success and security, we tend to lose focus on financial goals like these. That’s in part because, as our resources grow, our goals tend to multiply as well. By articulating your goals, you are validating them and setting priorities.

We can also help you build upon something that is more of a concern and turn it into a concrete goal that can be directly acted on. For example, if you are concerned about maintaining peace in the family, we can help you provide for the disposition of your assets at death in a manner that treats your children equally but acknowledges the special circumstances of a particular child.

Q: Assuming I’ve identified my goals, then what do I do?

RAJ: After you’ve identified your goals, the next step is to identify all the relevant circumstances. Depending on the nature of your goals, this could be a broad or narrow universe. But in either case, there are certain facts you’ll need to share. For example, if we are being asked to create an investment strategy for a $10 million portfolio, as part of understanding your goals we’ll need to determine the expected levels of contributions and distributions from the portfolio. We’ll need to know the time horizon for the funds, which could be tied to your goals in terms of a specific purchase or payment. Or it could be tied to your estate plan and gifting strategy. 

Ideally, we’ll also know where the portfolio fits into your overall balance sheet, so we can complement the handling of your other assets and any goals you may be seeking to achieve outside of the portfolio. And last, we want to know your tax status and any special considerations, which could involve preferences around environmental, social or governance concerns, tax considerations or life events you may be anticipating.

Those are the basic considerations when crafting any investment strategy, all driven by your overriding goals. Again, depending on your goals, you may cast a net over a broader range of circumstances or drill down in greater detail on the circumstances I just mentioned.

Q: My goals are way off in the future. How do I monitor my progress?

BRYAN: At the beginning of a relationship with you we establish your strategy. We continually evaluate your strategies along the way and adjust if your financial life evolves over time.

These changes may involve actual changes to your circumstances or your goals themselves, or it may simply be the possibility of change or uncertainty. Our job is to help you understand how and when events in your life influence your financial affairs and how you can best plan to deal with uncertainty.

RAJ: It’s also important to note that focusing on your goals doesn’t mean ignoring your investment performance. It simply means reorienting performance in the right direction. Quality results are always our objective—not only in terms of reaching your goals, but also in terms of each component of our services that contribute to your achievement. We also aim to keep your Investment Policy Statement up-to-date by including it in your quarterly account statements and having your portfolio manager review it with you at least once a year.

On the other hand, a goals-based approach measures success by tracking your progress toward each of your goals. If you are on course and meeting the timeline you put in place, our asset allocation recommendations are validated. And If you fall short of expectations, we can quickly detect any areas of weakness and make any necessary adjustments to your asset allocation strategy.

This communication is intended solely to provide general information. The information and opinions stated are as of March 18, 2018, and may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.