Goal-based investing: Theory and practice

Summary:

There is the need to design an investment solution that is a function of different kinds of risks to which individuals are exposed, or needs to could be exposed to fulfil their goals, as opposed to purely focusing on the risks impacting the market as a whole. Goal-based investing is a new paradigm that is expected to have a profound and long-lasting impact on the wealth management industry.

This book presents the concept in detail and introduces a general operational framework that can be used by financial advisors to help individual investors optimally allocate their wealth by identifying performance-seeking assets and hedging assets. Grounded in the principles of asset pricing and portfolio optimization, the goal-based investing approach leads to the design of investment solutions that truly respond to investors' problems, which can most often be summarized as follows: secure essential goals with the highest confidence level and maximize the chances to reach aspirational goals.

Through a number of realistic examples of case studies, Goal-based Investing illustrates the efficiency of this paradigm and guides readers through the implementation. The book illustrates the benefits of the approach, and explains how it can accommodate a variety of implementation constraints, including taxes, short-sale, parameter estimation risk, as well as limited customisation.