Objective based investing is an alternative approach to investing other than using Risk Profiling and Strategic Asset Allocation (SAA).
With the primary aim of investing being to achieve current and future goals there are numerous ‘objectives’ an investor could consider when building a portfolio. For example targeting a certain level of income or having an amount of capital available at a particular point in time. Whatever the objectives, the investment decision an investor makes today determines tomorrow’s financial possibilities.
As each investor’s situation is unique, there is no one size fits all approach. Even then investors’ objectives and risk profiles typically ‘evolve’ through the lifecycle or as circumstances change. WLM believes it is appropriate therefore that investor’s seek advice so that their investment portfolio is designed to meet their particular needs and objectives of each investor, rather than take a more generalised approach as is usually the case under risk profiling and SAA.
Objective based investing considers more than simply holding an allocation to the traditional assets of cash, fixed interest, property and shares in a pre-determined amount. Objective based investing and dynamic asset allocation combine in an effort to enable investors to consistently meet specific objectives with an appropriate level of risk.
For example, for most investors one of the most fundamental objectives is to have access to ‘cash’ as or when it is required. At a base level cash flow is crucial to ensuring quality of life, regardless of your stage of life or financial position.
Cash flow and liquidity requirements are therefore a useful starting point for building an objectives-based investment portfolio. It helps to meet living expenses or other planned expenses such as cars, homes, renovations, children’s education and so forth. It can help provide peace of mind by seeking to match your investment portfolio to your cash flow and liquidity objectives.
Once cash flow and liquidity requirements have been considered then wealth building or protection objectives should be considered.
To find out more about objective based investing please contact your adviser at WLM Financial Services.