What is the objective of goals-based asset allocation?

The primary objective of goals-based asset allocation is to achieve investment goals with specified probabilities of success. This approach focuses on aligning an investor's portfolio with their personal financial goals, such as funding retirement, purchasing a home, or paying for education.

In goals-based asset allocation, an investor identifies specific targets and assesses how likely they are to achieve those targets based on different allocation strategies and market conditions. By quantifying the probabilities of reaching these specific goals, investors can make more informed decisions about their asset allocation and adjust their portfolios accordingly to enhance their chances of success.

This methodology contrasts with traditional asset allocation, which often emphasizes risk-adjusted returns or broad market indices without explicitly tying the strategy to individual investor goals. Thus, by prioritizing the achievement of specific financial milestones, goals-based asset allocation allows for a more personalized investment approach that reflects the unique circumstances and aspirations of the investor.