Think about your biggest dreams and goals. Perhaps you want to retire early and purchase a houseboat or vacation home for your family. Maybe you always had a business idea in the back of your mind and eventually want to bring it to life. Or maybe you want to ensure that when your daughter gets accepted into her dream college, you can afford to pay the tuition without scrambling for cash.
We all have different life goals and financial situations, which is why a one-size-fits-all investment approach simply won’t cut it. Instead, investment advisors recommend goal-based investing, which centers on the simple idea that your portfolio is successful when it can fund your most important goals.
Goal-Based Investing: The New Standard
In goal-based investing, we help clients identify specific life goals (and related time horizons) and then build a portfolio that suits those unique needs. Instead of reacting to short-term dips and spikes in the market, our long-term strategy and performance metrics are based on the progress being made toward our investors’ concrete goals.
This increasingly popular investment approach redefines the term “risk.” Jean Brunel, author of “Goals-Based Wealth Management,” explains how goal-based investors measure risk as “the probability of not achieving your goal,” rather than focusing on subpar returns. By shifting the focus away from beating the stock market, investors can better weather market volatility while knowing that their portfolio is designed to get them closer to their goals every year.
How Private Equity Real Estate Helps Investors Achieve Their Goals
Due to the long-term nature of goal-based investing, private equity real estate and other alternative investments are well-suited for such portfolios. As David Scherer, Principal of Origin, states, “advisers are taking a page from the real estate, private-equity playbook by timing their investments for maximum returns when the asset will be sold, rather than constantly chasing short-term gains.”
For many sophisticated investors, real estate is an excellent alternative investment due to its superior returns combined with lower volatility. By nature, Scherer claims, real estate is a goal-seeking investment: “Value-added real estate projects work long-term to create value in under-performing assets, building both an income stream and market value.” So when creating a diverse portfolio that’s meant to achieve long-term goals, private equity real estate is an excellent choice.
Switching to a Goal-Based Investing Approach
While the exact details of our goals vary greatly from person to person, many investors share some of the same basic desires. These are frequently centered around some of the following categories:
- Retirement - How do you envision your retirement? When do you want to retire? Do you expect your lifestyle to change once you’re retired?
- Family - With rates increasing every year, will you have enough money to afford your son’s college tuition? Do you have enough money to keep up with your daughter’s traveling soccer team fees? We all know that children are expensive to raise, and this is one aspect of our lives where nobody wants to fall short.
- Legacy - Will your family be taken care of when you leave this world? What will be left behind for your children? Are there charitable organizations that you want to support?
- Leisure - Will you finally purchase the vacation home in Hawaii you’ve been talking about for years? What are your passions and hobbies? Where do you want to travel? How do you want to celebrate your life of hard work?
If you are tired of following the short-term rises and dips of the stock market and want to make sure that your portfolio is optimized for your biggest dreams, it’s time to make your money work for you. If you’re interested in using a goal-based investing approach, then ask yourself the following questions:
- What are my biggest goals?
- Is it time to update my portfolio to reach these goals?
- Is my portfolio taking advantage of alternative investments?
- Are traditional investments like stocks and mutual funds getting me closer to my goals?
- Do I want to invest in the lucrative asset class of real estate?
- How do I measure the success of my portfolio?
We complement goal-based investing with private equity real estate investments that provide higher risk-adjusted returns compared to alternative investments. By looking at your individual goals and assessing your tax situation, risk tolerance, and time horizon, we can suggest real estate investments that will help you achieve your goals and diversify your portfolio to win.
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