How do I create a goals-based financial plan and get my current investments to follow it?


August, 2010 |

“This structure…stresses putting a client’s lifestyle goals and risks ahead of traditional modern portfolio theory allocation models.”

Unbelievably many wealthy families have never taken the time to develop a financial plan. Yet it is a critical first step toward achieving peace of mind and developing an asset allocation strategy designed specifically to meet personal and family goals.

To help visualize a family’s current asset base, we break out investments into three separate risk pools: personal protection, market exposure and aspirational. This structure, developed by Ashvin Chhabra, stresses putting a client’s lifestyle goals and risks ahead of traditional modern portfolio theory allocation models. Goals-based planning takes into account a client’s “sleep factor,” which is largely ignored in common planning strategies. Many wealthy families want a customized, purpose-driven plan they can embrace, and they appreciate a portfolio constructed specifically around a true understanding of their personal goals.

The personal risk pool includes assets that focus on safety and preservation of lifestyle, principal protection and cash flow. This account pays the bills, and some clients have multiple years of living expenses in their safety pool.

The market-exposure pool is designed to maintain a client’s lifestyle by providing a hedge against inflation through a broadly diversified portfolio balanced between risk and return.

The aspirational risk pool holds assets meant to outperform the markets by taking measured risk. These can be more long term and illiquid by nature and can include concentrated equity positions, illiquid or privately held assets. It is designed to provide significant growth but often can have significant risk. These assets often represent the intellectual and emotional capital of a family, such as a family business.

After assets have been delineated into these intuitive risk pools, a quantitative and qualitative review follows in which client goals and cash-flow requirements are aligned. A customized portfolio is then designed and stress tested with probability analysis software to provide a solution that is designed to meet family goals at a comfortable risk level. This customized plan acts as a touchstone in volatile markets to help investors avoid common mistakes made when emotion often rules.

The plan is dynamic and can shift as the client’s needs and circumstances change. Goals-based planning has assisted many investors in recognizing what risks they are taking, and what risk they need to take to realize their different goals. Whether it is to build a family legacy, provide a certain lifestyle, or fund a charitable foundation, goals-based planning is a useful starting point. A plan to accomplish any task is critical.

There is an old saying, “If you do not know where you are going any road will get you there.”

Do you have that road map for you and your family’s financial and life goals?

Click here to download PDF: How do I create a goals-based financial plan and get my current investments to follow it

Bill is one of four founding partners of Coastal Bridge Advisors.   Bill leads the Corporate Executive Services, Lending and Alternative Investment operations of the firm. Bill is also responsible for overseeing business development and the firm’s west coast operation. With a career spanning almost 30 years, Bill began his career at Merrill Lynch in 1986. …

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