Identify Financial Goals /

The purpose of collecting personal financial data is to obtain information to conduct a thorough analysis on his/her current financial position, as well as future financial goals.

Financial Goals

An investor's financial goal determines his/her expectation on the return of investments. Financial goals are the cornerstone to draft the final financial plan. In general, there are 3 primary and 2 secondary goals:

  1. Safety - the presercation of investment capital
  2. Income - income generation, to obtain a series of cash flow
  3. Growth - the increase of portfolio value primarily from capital gains
  4. Liquidity - the marketability of portfolio assets
  5. Tax minimization - the desire to minimize tax payments through choices of investment products

Some more tangible goals should also be identified during the review process:

  1. Cash flow - how much money you need for now, and your retirement?
  2. Time horizon --- how long you expect to keep your money in an investment?
  3. Desired rate of return --- what is the expected level of return for different investments?

Life Cycle Analysis

Investor's Life Cycle Analysis is a good approach to determine the financial goals of different individuals based on the financial data collected.

Life Stages
Risk & Return Profile
Financial Goals
Accumulation Phase
Early career stage, long time investment horizon
high-return, high-risk
Consolidation Phase
Mid-to-late career stage, still relatively time horizon
(income > expenses)
high-return, high-risk, but shift to low-risk assets within last five years.
Tax minimization
Spending Phase
Retirement years, relatively long investment horizon (10+ years)
(expenses > income)
low risk
Gifting Phase
Possess more assets than need, short investment horizon, gift wealth to others to avoid tax
low risk
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