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What If… Goal-based Investing for the Future HNWI

Taras Bakusevych Taras Bakusevych
Goal based Investing for the Future HNWI

Goal-based investing is the future of investing for High-Net-Worth Individuals (HNWIs). Indeed, for many, it is already the present. Several factors are driving the transition among wealth owners from the traditional, long-view-only approach to investing to a goal-based approach.

Firstly, there has been a recognition that the singular goal of attaining maximum net worth by retirement (or death) is not necessarily the ideal goal. Life has many inflection points and milestones that require a range of investment horizons/risk appetites. Secondly, goal-based investing can mitigate systemic risks such as financial crises, which can have a particularly severe effect as one approaches retirement and time available to rebalance a portfolio reduces.

What is Goal-based Investing?

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.” (Investopedia)

Right now, the process of planning a new milestone is long-winded: a wealth owner needs to contact their manager and answer numerous questions before receiving a report days later. Even the specific tools that allow you to analyze the risks and plan your investments cannot fully examine a high diversity of plans and goals in different spheres of life.

Topaz aims to make goal-setting and risk assessment not only simple and powerful but even fun and engaging, allowing for spontaneity without sacrificing due diligence. Let’s continue through a day in the life of Elizabeth, one of our HNWI personas, as she sets new financial goals.

Empowering Decisions with Technology

It’s lunchtime, and Elizabeth opens Topaz. Frustrated by coronavirus restrictions in Switzerland and unable to leave her house, Elizabeth experiences an unbearable urge to take control, to reassert herself over her own life. Opening Topaz’s goal-setting app, a dashboard displays her financial and non-financial goals, grouped by category and priority.

She has family goals: Elizabeth wants to send her two children to universities in the US—no trivial expense—and is already growing a nest egg for their future offspring. But speaking to her more are her ambitions of owning a property overlooking the sea in Monaco and planning an expedition to Everest base camp. She shifts both from “medium priority” to “high priority” and the algorithm re-calibrates her investment portfolio to target short-term returns. At the same time, she slides a new car purchase from medium to low priority—not so important now, she thought.

She swipes to a line-chart view to see how each goal fits into her long-term investment trajectory. It shows the best- and worst-case scenarios and the breakdown of goals into categories: financial, family and growth, and health.

Image shows the investment trajectory of a HNWI and the impact of their life goals

Elizabeth notices that Topaz has marked a few of her goals with a red alert notification. The Everest expedition is flagged: Topaz assessed her medical history and, due to a history of high blood pressure, recommends a health check-up to make sure it’s safe for her to do hard exercise at high altitudes. The app connects with her medical insurance provider and, with a few presses, Elizabeth has scheduled the necessary appointments.

Her property investment goal is also flagged. Topaz calculated that an increase in adverse weather events presents a risk to Elizabeth’s portfolio value. It suggests that she alter her investment strategy or up her insurance level. Deciding that was a level of risk she could tolerate, she ignores this notification.

Then, Elizabeth decides she wants to make a big move. And why not? Her business is doing well, even during the pandemic. She creates a new goal: raise investment capital to make an angel investment in a friend’s start-up. She would need about $800,000, raised relatively quickly to strike while the iron is hot. Pressing “Save goal” triggers Topaz’s AI to generate a risk assessment.

Image shows a "new goal" workflow

A Smart Approach to Goal-setting

Once a risk profile is identified, the user inputs goals into Topaz. By combining them with the user’s risk profile and priorities, Topaz sets targets against a timeline. A second layer applies the user’s investment preferences (ESG) and simulates investment performance. Progress towards goals is monitored and fed back into goal-setting for steadily improving results.

Image shows a goal-based investing flow, where goals and preferences create an investment timeline.

Concluding thoughts

The future is much closer than we think. At Topaz, we try to anticipate it before it arrives. Seamless goal-based investment management is a reality that HNWIs need.