Accredited Wealth Management Advisor Practice Exam

Which of the following best describes a major goal of goals-based investing?

1. To achieve the highest annual returns on investments.

2. To focus on reaching life financial goals.

3. To minimize tax liabilities over the investment horizon.

4. To diversify the investment portfolio across various asset classes.

The correct answer is: To focus on reaching life financial goals.

Goals-based investing centers around the idea of aligning investment strategies with specific financial goals, such as saving for retirement, funding a child's education, or purchasing a home. By prioritizing objectives rather than merely seeking maximum returns, this investment approach allows individuals to tailor their portfolios to meet their particular needs and timelines. In this framework, performance is measured by the extent to which these defined goals are achieved, which might not always correlate with achieving the highest returns possible. Instead, the focus is on reaching desired future financial milestones. This makes it easier for investors to visualize their progress and maintain motivation as they are working towards concrete outcomes. While minimizing tax liabilities and achieving portfolio diversification are important aspects of a comprehensive investment strategy, they are not the central focus of goals-based investing. Instead, those strategies are typically employed within the broader context of achieving the life financial goals that drive the investment decisions.