A Case Study: See How Samantha Used Goals-Based Investing to Plan and Achieve Her Family's Future

This case study demonstrates how Samantha, a VP of Supply Chain at a large retailer, uses Goals-Based Planning to align her family’s wealth with their various goals. The key difference with Goals-Based Planning is that it defines success by achieving specific goals, rather than focusing on rate of return or the size of an investment account. Now, let's meet Samantha and her family to see how they put this approach into practice.

Samantha is the Vice President of Supply Chain at a large retailer. She and her spouse, Madison, a high school psychology teacher, have 12-year-old twin daughters.

As their financial situation becomes more complex, with retirement and other long-term goals approaching, the couple decides to meet with a financial planner. Their goal is to align their finances with their aspirations, understand whether those goals are financially feasible, and determine the actions they need to take to maximize their chances of success.

Step 1 - Let's Dream

The first step in the process is to articulate their goals. In this phase, there are no constraints. After some thought, the couple identifies four main goals:

1. Retire in 10 years with the financial ability to maintain their current lifestyle for the rest of their lives.

2. Support their daughters as they transition into adulthood. While they're not sure of the best way to do this yet, they want to help.

3. Purchase a vacation home where they can host large gatherings, particularly as their daughters begin their own families.

4. Leave a legacy through giving the charity and providing for the next generations.

   
   

Step 2 - Translate to Financial Objectives

The next step is to convert these dreams into clear financial objectives. Financial objectives have three components:

1. Funding Requirement: How much will each goal cost?

2. Time Horizon: When do they need to fund each goal?

3. Risk Flexibility: How important is it that each goal is achieved?

   
   

After much discussion, the couple decides on the below 5 goals.

Retirement: The couple needs $5,000,000 in 10 years to fund their living expenses in retirement. They want to be fairly certain of achieving this goal, aiming for an 85% probability of success.

Tuition: They plan to support their daughters by providing each with $250,000 for college tuition, starting in 6 years. This is an important goal, and they want to be fairly certain they can provide this financial assistance, targeting an 80% probability of success.

Vacation Home: The couple wants to purchase a vacation home to host friends and family. The estimated cost is $1.2M in 10 years. While important, this goal is not as high of a priority as the first two. They are comfortable with a 60% probability of success for this goal.

Daughter Homes: Similar to the tuition goal, the couple would like to help both daughters purchase a home at around age 30, in 20 years.

Legacy: The couple wants to leave a legacy in the form of charitable gifts and paying for their future grandchildren’s education. While the details are not yet finalized, this is considered a nice-to-have goal. They are content with a relatively small probability of passing on $4M in 30 years.

Step 3 - Allocate Wealth to Goals

With their goals and financial objectives in place, it's time to allocate their wealth to each goal. The couple's wealth consists of two components:

1. Financial Capital: This includes their current savings in investment accounts, retirement accounts, and company-sponsored plans.

2. Human Capital: This refers to future savings from earned income that will be allocated toward these goals.

   
   

For financial capital, the couple currently has $2M saved across their retirement accounts, Samantha’s deferred compensation plan, and a joint investment account with stocks and bonds.

For human capital, Samantha plans to save income from her equity compensation ($350K) and bonus ($150K), while Madison will continue contributing the maximum to his retirement account ($25K). This totals $525K per year in future savings.

After significant discussion, the couple agrees to allocate and invest their wealth as follows. By determining the wealth and investment allocation for each goal, they can calculate the probability of success using a Monte Carlo simulation.

For example, they allocate 60% of their investments and future savings to their retirement goal. The wealth will be invested 60% in risky, higher expected return assets (e.g. stocks) and the remaining 40% in safe assets such as bonds and cash. The Monte Carlo runs hundreds of simulations based on the expected return and volatility parameters with ~85% of scenarios meeting the $5M goal in 10 years.

The couple is satisfied with their current allocation and plans to review it annually but....

...a few months later, they decide to accelerate the purchase of their vacation home so they can enjoy it while their daughters are still young. Rather than waiting 10 years, they choose to buy the vacation home now. However, the couple will be required to make trade-offs with other goals to fund the $1.5M purchase today.

While they still want to prioritize their retirement and college tuition goals, they are flexible on the other two: purchasing their daughters' first homes and their legacy.

Ultimately, Samantha and Madison decide to remove the goal of buying their daughters' first homes. The good news is that it's likely they will exceed their retirement and tuition savings targets. Any excess funds can be redirected toward purchasing their daughters' first homes or another future goal.

Goals-Based Planning

Goals-Based Planning defines success as achieving your specific goals, rather than focusing solely on the rate of return or the size of your account. While returns and account size are important, they do not define success on their own. By aligning your financial decisions with your goals, you gain a clearer understanding of what is possible, what needs to happen, and the necessary trade-offs required to reach your most important goals.

Thanks for reading,

Mark Chisenhall, CFA, MBA

Financial Advisor | Founder of Taurus Financial Planning

Taurus Financial Planning is a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.