The Goal Based Investing strategy is suitable for choosing investments according to certain objectives. How does a goal based investing strategy work?

What is a Goal Based Investing Strategy?

The following is a description of the goal based investing strategy from several sources:

James Chen Goal-based investing (GBI) involves a wealth manager or investment firm’s clients measuring their progress towards specific life goals, such as saving for children’s education or building a retirement nest-egg, rather than focusing on generating the highest possible portfolio return or beating the market.

Jacqueline DeMarco [2] Goal-based investing is a specific type of investment strategy that uses investing to work toward meeting personal financial goals. With goal-based investing, each of your investments has a purpose related to a goal.

Advantages of Goal Based Investing

Some of the advantages of the Goal Based investing are:

#1 You Can Stay Motivated and Disciplined The focus of Goal Based Investing (GBI) is realizing your financial goals. For further consideration:

• Why should I invest?
• How long to invest?
• How much should I invest each month?

# 2 Ease in Choosing Investment Products If your investment goals are clear, then you can more easily calculate how much to** invest at once (Lumpsum) **and invest regularly every month (Dollar Cost Averaging). In addition, you can also determine the best investment products and their asset allocation.

#3 Easier to Rebalance The Goal Based Investing strategy also facilitates the process of reinvesting or rebalancing investments. For example, every month you can compare investment growth to investment targets.

Example of a Goal Based Investing Strategy

Anton and Grace want to plan for their retirement. They want to retire at 60 years old (about 27 years from now).

Based on their calculations, Anton and Grace's current retirement needs (accommodating their current lifestyle) are at IDR 6 billion.

Currently, Anton and Grace already have a pension fund investment of IDR 300 million in mutual funds. They both can invest IDR 8 million per month.

What is the right investment strategy for Anton and Grace to prepare for their retirement?

#1 Calculating Retirement Needs

Anton and Grace's retirement needs, which were initially Rp. 6 billion, will increase to Rp. 22.4 billion in 27 years. The inflation assumption in Indonesia remains at 5% per year.

#2 Calculating How Much Must Be Collected

The current invested amount for Anton and Grace's pension fund, which has reached IDR 300 million, can grow to IDR 6.4 billion in 27 years. The investment target assumption is 12% per year.

This investment target is adjusted to a long investment period (more than 5 years).

Here's a summary: Retirement requirement = IDR 22.4 billion Money owned = IDR 6.4 billion Difference = IDR 16 billion

How can Anton and Grace get IDR 16 billion? Based on calculations, Anton and Grace need to routinely invest IDR 6.6 million/month with an investment target of 12% per year.

# 3 Chooseing Investment Products

The recommended investment strategy for Anton and Grace is as follows

with the following investment target simulation:

Disclaimer: the above strategy is only meant as an educational tool, not investment advice.

If you need help creating an investment strategy, please contact a Moduit Wealth Advisor.

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