Taking a Goals-Based Approach to Investment Risk

The real measure of risk is whether or not you reach your financial goals. After all, ask yourself this question: If you beat a benchmark in any given year but are not in a position to reach your financial goals, what have you accomplished?

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While investors may view risk in a number of ways, the approach you take should always point you toward your long-term goals. Achieving your financial goals—especially your long-term goals—requires a highly disciplined approach that helps navigate the ups and downs of the market.

Many retail investors measure risk by trying to compare performance to a market index (or benchmark), such as the S&P 500, Dow Jones Industrial Average, Russell 2000, or the NASDAQ just to name a few. So, if it was a tough period and the benchmark was down 20% but your investment portfolio was down 18%, you “outperformed.” Relatively speaking, that’s not bad. And if you judge your success on beating the benchmark—congratulations you “succeeded”! Yet the fact is you’ve experienced a considerable loss in capital, which may put one or more of your financial goals at risk. There’s certainly not much comfort in that type of standard.

Goal-Based Investing Keeps Your Future in Sight

Another approach—likely to provide you with a more helpful long-term perspective—is to look at risk in a personal way. That is, risk can be based on your own unique life goals and the probability of meeting or falling short of those goals. This is known as a goal-based approach and it’s how we do things here at ACCESS Wealth Management. Goal-based investing has long been employed by large institutional investors in the management of their portfolios.

As your advisors, we like to help you integrate this approach. First, we review your financial profile and your short- and long-term objectives. From there, we build a portfolio that puts you on track to accomplish those objectives. Gauging portfolio risk and performance, then, is a matter of tracking the total returns of your portfolio and determining whether or not your goals are within reach. After all, investing should be about achieving the future you want for yourself and those important to you. We will work at all times to keep you on a path for you and your family to enjoy a Life Well Lived. Being in a position to realize your goals is the only true measure of successful investing