Episode #43- Goals-Based Investing and The Power of Naming Your Investment Accounts

Wealth Decisions Podcast Transcript for Episode #43:Goals-Based Investing and The Power of Naming Your Investment Accounts

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In today's episode, we're gonna talk about that one thing and how it can influence your financial decisions and your ability to reach all of your most important goals.

So for the sake of time, let's dive right into it.

Well, hey, hey there, Wealth Builders, it's Brian Muller.

We're gonna be talking about a powerful approach to investing that's gaining a lot of traction among financial advisors and investors.

We're gonna be talking about goals-based investing and the power of naming your financial goals.

So what is goal, goals-based investing?

But first, let's just start off with one fundamental truth.

Money is not just about numbers on a screen.

It's about what those numbers can help you achieve in your life.

According to research by SEI Investments, investors who align their portfolios with specific life goals are not only more likely to stick to their investment strategy during market ups and downs, but they also report higher satisfaction with their financial planning and their progress.

So today, we're going to be talking about the power of naming your goals.

But before we dive into the framework, let's talk about something that might seem simple, but has a profound psychological impact, and that's naming your investment accounts.

Research shows that investors who give their accounts meaningful names tied to specific goals are 42% more likely to stay committed to their investment strategy and to reaching those goals, regardless of market volatility.

So instead of having a specific or generic investment account number two or investment account number three, consider names like Tommy's College Fund 2038 or Dream Beach House 2030 or Financial Independence 2045 or European Adventure 2026.

Just this simple act transforms just these kind of abstract numbers into concrete goals.

And when you're tempted to react to market volatility, you maybe see the account labeled Tommy's College Fund instead of investment account number one.

And it creates more of an emotional anchor that helps you maintain a long term perspective.

Now let's talk a little bit about the three bucket framework for naming your financial goals.

You're going to have a short term bucket for zero to three years.

You're going to have a mid term or intermediate term bucket for three to ten years.

And a long term bucket for ten years plus.

And your short term bucket is going to have a combination of your emergency account, which is typically six to nine months of your basic needs there for any type of emergencies.

And then any goals that you have in the next one year or two years or even three years from now.

And that could be a home improvement project.

It could be some trips that you have planned that you want to go on.

It could be even for some type of other goal, like maybe you want to buy a boat or maybe you want to buy a second vehicle.

And then your mid-term bucket is going to be three to ten years.

That's going to be blended with investments that are more secure, like some fixed income funds, but also some dividend producing stocks and a more balanced approach to investing.

And this is going to be for longer-term goals.

This again could be a home improvement project that you want to do five years from now, or maybe you want to buy a second home or a cabin or vacation property.

And then your long-term goals is going to be 10 years plus.

And this is going to be your stuff for retirement, your long-term planning.

And this is going to be definitely a more growth-oriented approach.

So you're going to have investments in the growth parts of the market and emerging markets and small cap and mid cap and international.

And when you look at like your midterm bucket, you can also look at that as a place that you could have some more conservative investments.

If there's ever a market downturn, you could take some money from that midterm bucket if you don't need it in the next one to two years for any projects you have or a long term goal that you may have to buy a vacation property.

You could take some of that and take advantage of any market dips and move that from your midterm bucket to your long term bucket to take advantage of any opportunities.

The bucket approach can be really helpful to assign these different goals to and name your investment accounts in each one of your buckets and this will bring more meaning to those goals and connect you to them and make sure you stay committed to them and stick to a regular investment program to meet those particular goals.

According to SEI Investments, if you name your investment accounts you'll have about a 42% better chance to reach those particular goals and to stay invested regardless of the market's ups and downs.

Think about it like this for a moment.

By changing your perspective from beating the market to funding my child's education, you're changing your relationship with investing because you're focused on a goal rather than a goal to outperform the markets.

So let's talk just a little bit about how to implement this goals-based investing approach and using the power of naming.

And let's break it down and put it into practice.

So you want to identify your goals and name those goals.

List all your financial goals and then create meaningful specific names for each account.

And assign time frames to each goal and estimate maybe the requirement of how much you need to fund to reach each one of those goals.

And then prioritize the goals based upon maybe importance and urgency.

And number two is to align the risk with each goal, you know, match the investment risk to each goal time frame.

You might have some goals that are in the near term bucket.

You might have some goals in the mid term bucket.

And then you'll have some goals that will be in the long term bucket.

You know, consider your personal risk tolerance, but also looking at the time frame of each one of those goals.

And then factor each goal's importance and how much flexibility you have to reach those goals.

And then it comes down to the portfolio construction.

You know, build separate mini portfolios for each goal.

Depending on the time frame, each particular goal is gonna have in a different type of asset allocation for each of those time frames.

And consider also the tax efficiency across the accounts.

If this is your near-term bucket and it's all taxable type investments, you'll want to create a portfolio of tax-efficient ETFs or mutual funds with low turnover or individual stocks.

So each goal is gonna have a name and it's gonna have a risk alignment and a certain portfolio construction that works for that particular goal.

Now let's talk about some of the common pitfalls to avoid.

You know, Morningstar analysis highlighted kind of some of the most common mistakes when it comes to goal-based investing.

Number one, you might be too conservative with long-term goals.

It all comes down to your specific goals and what you want to achieve, but you might be too conservative with some of your long-term goals.

Run your portfolio through a financial plan and determine if you're taking on the appropriate amount of risk.

Number two, some people might have just an insufficient amount in emergency savings.

Your goal should be to have at least six months in an emergency account of your basic needs.

So if your basic needs are $6,000 per month, then you should have somewhere between $30,000 to $40,000 in an emergency account.

Number three, some people fail to adjust their allocations to the goal-based approach.

So if they have a near-term bucket, they might not have the right asset allocation for that near-term bucket.

They may be taking on too much risk.

Number four is not maybe accounting for inflation in your long-term planning and your financial plan, and also factoring in taxes.

And number five, maybe using generic account names that maybe don't connect to your goals are some of the common mistakes.

It's really important that you develop, if you're going to develop this type of three-bucket framework and naming your goals, it's really important to review your goals annually.

And this SEI did some research that people that reviewed their goals annually are 45% more likely to achieve them.

So this isn't just about portfolio rebalancing, it's about ensuring your investments remain aligned with your kind of ever-evolving goals.

So whatever particular goal you have, whether it's in the near-term bucket or mid-term bucket or long-term bucket, check in and regularly just review those goals and whether you're on track to meet those.

So here are some action steps to consider before we wrap up today's episode.

You know, write down your financial goals with specific timelines.

Rename all your investment accounts to reflect that specific goal and purpose.

Categorize your goals into three time buckets, near-term, mid-term and long-term.

Review your current portfolio allocation for each one of those goals.

Schedule maybe a quarterly or semiannual check-in to track your progress.

And the final step would be just to adjust as life circumstances change.

Remember, always remember that successful investing isn't just about beating the market or some type of benchmark.

It's about funding the life you want to live.

And by adopting a goal-based approach and naming your investment accounts to give your accounts some meaning, you're not just investing money.

You're investing in your future experiences, your relationships, your legacy, and all the goals that are most important to you.

So that's it for today's episode, The Power of Naming Your Financial Goals.

And if you like this episode, please rate the episode, make some comments and hit the notification bell to get updated on future Wealth Decisions Podcasts.

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My goal with the Wealth Decisions Podcast is to reach over 100,000 people by the end of the year in the Twin Cities and beyond, so that people can make better wealth decisions to live a richer life.

If you like to schedule a discovery call with me, you can go to my website at momentouswealthadvisors.com and I'll spend some time to get to know you a little bit and find out if I might be able to steer you in the right direction or help you with your financial future.

Once again, thanks for listening and have a great weekend.


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-Brian D. Muller, AAMS® Founder, Wealth Advisor

Momentous Wealth Advisors in a fee-only fiduciary advisory firm

Disclaimer: This material is for informational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

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