Chapter 6The Principles of Goal Based Investing: Personalize the Investment Experience

“Imagine how much harder physics would be if electrons had feelings!”

—Richard Feynman (1918–1988)

This chapter focuses on Goal Based Investing, which is the long-term game changer in the process of transformation of the wealth management industry. The principles of this client-centric approach are discussed, starting from its foundations: the theory of motivation and prospect theory. The recognition of personal values, multiple investment goals, multiple priorities, multiple time horizons, and multiple risk profiles allows us to identify the fundamental building blocks of added-value, competitive, and personalized investment experiences. Goal Based Investing should be the rationale behind any strategy of digital wealth management and Robo-Advice 2.0.

6.1 Introduction

The spirit of the wealth management industry is to provide families and individuals with consistent and up-to-date insights, reasoning, and advice to make wiser and more informed financial decisions about investments, liabilities, and possibly the management of real assets. Any financial investment entails a level of risk, whether a full capital loss or a lower than expected return, which advisors are required to identify and possibly measure. Compared to the boom years of the post-war economy in the US, when Modern Portfolio Theory was initially formulated, investment products have become more complex and leveraged, while ...

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