Although the goals-based investment literature has grown, there remain two unsolved problems. First, there is no cohesive theory for the allocation of wealth across goals. If, for example, a client wants to retire in 30 years, send a child to university in 8 years, and buy a vacation home in 4, how she should divvy her wealth across those goals has been an open question. Restating the same problem: The vesting of shorter-dated goals carries a loss of achievement probability for longer-dated ones. How much probability loss is acceptable? Second, mean-variance portfolios yield lower probabilities of goal achievement than goals-based portfolios. I demonstrate use of the goals-based method. Parker (2020) introduced a cohesive goals-based allocation model that solves these problems. The approach, however, carries some practical challenges that are addressed in this discussion. Finally, I discuss some possible implications of the approach on the structure of firms, the regulatory environment, and the industry as a whole.
https://jwm.pm-research.com/content/23/1/8