Direct Indexing can deliver Goal Based Investment Outcomes!
The power of Direct Indexing can be used to deliver hyper-customized client solutions, as an alternative to canned index solutions such as Target Date Funds or some types of annuitized payout products.
A custom investment goal involves just two key ingredients: a time horizon and a Safety Net level for the account. Optionally, it can include an aspirational upside target.
Here are three great examples of clearly articulated investment goals:
- I’d like to buy a house in 3 years and must have at least $100,000 for a down payment so I can qualify for a million dollar loan. Ideally, I’d really like to have $200,000 so I can avoid having to pay expensive mortgage insurance.
- I expect my daughter to be ready for college in 8 years and want to have at least $30,000 per year for her four years in college, but ideally, I’d like to have $75,000 a year to cover all her expenses without burdening her with a student loan.
- I plan to retire in 10 years. For the next 30 years after that, I’d need a minimum of $5000 a month but I’d really love to have $10,000 a month.
Traditional approaches involve canned, prefabricated “one-size-fits-most” products that often come in inflexible and expensive wrapping. Think of a Target Date Fund, a Period Certain Annuity or a Defined Outcome ETF.
Direct Indexing goes about this differently, by working backwards from the client’s goals to the holdings that will help get them there given each client’s risk budgets. Not all 2050-retirees have identical capacities for risk, and therefore shouldn’t necessarily be in the identical mix of stocks and bonds.
Using the power of Direct Indexed accounts, Advisors can help clients formulate these goals, and our Outcome Shaping engine is designed to generate a customized asset allocation that adapts to changing market conditions to get them there regardless of what happens to stocks and bonds! While there are no guarantees in these markets, our system is designed to monitor the risk budget and reallocate risk to maximize the probability of hitting the target while maintaining a Safety Net.