Our goal for every client is to empower them to use what they have and what they earn to underwrite a meaningful life. But “meaningful” means something different for each one of them. So how does our firm put one set of collective knowledge into action to create a different outcome for everyone? Goals Based Investing.
“Being rich is having more. The push for more is a treadmill on which satisfaction is typically fleeting. Wealth, by contrast, is funded contentment. The ability to underwrite a meaningful life – however, one chooses to define it.”
-Brian Portnoy, The Geometry of Wealth
Our goal for every client is to empower them to use what they have and what they earn to underwrite a meaningful life. But “meaningful” means something different for each one of them. So how does our firm put one set of collective knowledge into action to create a different outcome for everyone? Goals Based Investing.
Broadly speaking, Goals Based Investing means we specifically tailor your portfolio to align with what you’re trying to accomplish in your financial life. It’s the backbone of our philosophy, and it’s what makes us Wealth Managers, rather than simply Investment Managers.
More specifically, Goals Based Investing starts with understanding what cash flows you’ll need to sustain in order to fund your version of a meaningful life. We gain this understanding by helping you distinguish “Must haves” from “Want to haves.”
“Must haves” are the things you find essential. Of course, this includes basic needs like food, shelter, and health care. But for most, it also includes a retirement lifestyle that’s similar to the one they’ve lived prior to retirement. For some, things like giving to charity or supporting their children and grandchildren are important enough to rise to the level of “Must-have.”
The portion of your portfolio that’s earmarked for “must haves” is called Base Capital, and it’s invested in a way that matches the timeline of the cash flow needs with appropriately paired investments, as in the table below.
| Cash flow timeline | Investment type |
| < 5 years | Very safe, such as investment-grade bonds |
| 5-10 years | Conservative and balanced, such as diversified stocks, bonds, and liquid alternatives |
| 10+ years | More aggressive, skewed toward stocks and private, illiquid investments |
Your needs determine your unique asset mix and give a sense of the returns needed from this portion of the portfolio. The need for excess returns, or outperformance, in this part of the portfolio is not only less necessary, it can potentially be counterproductive if taking the risk required to outperform ends up resulting in Base Capital needs not being met.
Once Base Capital is earmarked the rest of the portfolio is Excess Capital, which is what gets deployed to help deliver your “Want to haves.” Figuring out your “Want to haves” involves very personal and often difficult decisions. Fortunately, there are no wrong answers. Once we’ve reached some conclusions about your unique wants we can determine the level of risk that’s appropriate for investments in this part of your portfolio. Developing an Excess Capital portfolio is a much more qualitative exercise than the quantitative process of developing a Base Capital portfolio.
For example, some clients truly value being able to sleep better at night. Portfolio volatility makes them nervous. There’s nothing wrong with that. It just means their “want to have” is knowing they’re not taking on excess risk to meet their goals. For them, we invest Excess Capital conservatively.
On the other hand, some clients want to try to get the highest returns with their Excess Capital. Their “Want to have” could be to leave as much money as possible to charity or their heirs, to have the ability to spend more in the future, or almost any other future goal that requires a larger asset base. For them, we invest Excess Capital more aggressively, including taking potentially active risk to try to outperform the market.
Of course, there are many shades of grey in between. But no matter what types of portfolios this approach helps us create for you, the important thing is that Goals Based Investing helps you truly understand where your money is invested and why, so as your needs, wants, and investment options evolve, you can be confident you’re making intelligent choices.
Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. Cobblestone does not provide tax or accounting advice; clients should also consult with licensed professionals in that field.