Magazine

What’s Goal-Based Investing, Anyway?

By Sallie Krawcheck

When you invest, you’re looking to build up money to hit a goal — not just a number on a piece of paper, but a real-life thing you want to do with your money. That’s why we use the term “goal-based investing.” The name is pretty clunky, but it means what it says: Our investment objective is to help you reach your goals. Period.

Believe it or not, that’s very different from traditional investment objectives, which often revolve around trying to outperform some target: a market index, performance, a tracking error. But using those objectives, it’s possible that we can be wildly successful in beating the market, but you as a client might not be able to start your business, or get on track to retirement, or buy a new home. That ... doesn’t work very well for you, does it?

We believe that goals-based investing gives you a much higher chance of reaching your goals. Even the simple act of writing down your goals and sharing them with others increases your chances of achieving them. Actually investing for them? Now you’re talking.

How does Ellevest do goal-based investing?

First, you’ll tell us about yourself and your finances, your age, career, and what you want to accomplish. We then create recommended deposit amounts and goal-specific investment portfolios, tailored to you and wholly designed to help you reach those goals.

From there, we create a customized investment portfolio for each of the goals you’re investing toward. And each portfolio can differ from the others, based on the type of goal you want to achieve. For example, a retirement savings portfolio will be very different from a more near-term Big Splurge goal. That’s in part because a longer-term goal enables you to take on greater risk — and offers the opportunity to achieve a higher return — since the time frame is longer.

Each goal’s portfolio is intentionally created with specific risk and timeline parameters, plus a good deal of thought about the kind of money goal you’re looking at. For example, with a Retirement goal, we target getting you to 90% of your income before you retire, and we take gender-specific data about lifespan and salary curves into account. You can read (way) more about it in our whitepaper.

What are those investing goals?

We start with building wealth, our most general goal — that’s available at every level of Ellevest membership, starting with the $1-a-month Ellevest Essential. For Ellevest Plus members, we add investing for retirement — one of the most important goals you can target. And Ellevest Executive members can invest in either (or both) of those, plus four other goals: buying a house, building up a kid fund, starting a business, or a big splurge. You can read more about how each goal works here.

How do we forecast the performance of the investment portfolios?

Well, we can’t predict the future, and past performance does not guarantee a future return on your investment — but we can analyze the past as a good starting point. Our forward-looking forecasts combine historical asset class performance and current economic conditions, and employ the expertise of Morningstar and our Chief Investment Officer Sylvia Kwan, to determine the range of possible outcomes for your portfolios.

What’s in the Ellevest portfolios?

At Ellevest, we primarily invest in passive exchange-traded funds (ETFs). These investment types are designed to provide broad market exposure while keeping costs low. We use ETFs that invest in both US and international stocks and bonds, and create curated combinations of these investments for each of your goals.

You also let us know whether you prefer our core portfolios, made up solely of passive ETFs, or our Ellevest Impact Portfolios, which are a mix of passive ETFs and some mutual funds designed for positive impact on your future, the world, and other women.. Then we determine what mix of funds can best help you meet your goals.

What is the probability of reaching a goal?

We target getting to your goal—or better—in 70% of market scenarios. To get there, we forecast hundreds of realistic economic scenarios, such as strong global markets, high inflation, economic recessions, and so on. We then construct a portfolio recommendation, and tell you the deposits you need to make, so that in 70% of those scenarios, you will reach the dollar amount of the goal you are targeting, or more. (This is higher than what we’ve seen at some other firms.)

And it’s not all-or-nothing. In 30% of the scenarios, you may just fall short of your target, not miss it completely. For many folks, this outcome can be fine — it may just mean starting their own business a bit later.

Disclosures

© 2018–2021 Ellevest, Inc. All Rights Reserved.

Ellevest Membership fees are as follows: Ellevest Essential is $1 per month, Ellevest Plus is $5 per month, and Ellevest Executive is $9. Other fees as described in Ellevest’s Wrap Fee Program Brochure and the Ellevest Membership Terms and Conditions Agreement will continue to apply.

The availability of Ellevest's investing goals depends on the membership plan selected. Ellevest Essential members can access Build Wealth only. Ellevest Plus members can access Build Wealth and Retirement On Your Terms. Ellevest Executive members can access all available investing goals.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Certain information was obtained from third party sources, which we believe to be reliable but is not guaranteed for accuracy or completeness.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investing entails risk, including the possible loss of principal, and there is no assurance that the investment will provide positive performance over any period of time.

Go ahead, invest in yourself

Kick your money and career goals into high gear with the Ellevest membership. Start investing, save for the short term, and help set Future You up for success with just $1/month.

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Sallie Krawcheck

Sallie Krawcheck is the Co-Founder & CEO of Ellevest. Her life’s mission is to help women to reach their financial and professional goals.