Let's have a look at a scenario here where a wealth manager has produced three different portfolios that their clients can invest in portfolios a b and c.

This wealth manager has also modeled the returns that we might get on these portfolios over a five-year time Horizon and also a 10-year time Horizon as well.

If we look at the five-year time Horizon to begin with we can see that the expected return on portfolio a is 4.5% It's up to 8% for B. And then 9.5 for C and risk grows correspondingly 2.5% for a 4.2 for B. And then seven the per C.

However, when we're thinking about things from a goals based investing perspective, the expected return is less relevant for us.

Goals based investing is thinking about ensuring we can still meet the investors required goals under poor Market outcomes.

So the final two rows of the first table are relevant here.

The wealth management company has also modeled the expected Returns on portfolio's a b and c under poor Market outcomes. So we're saying here the worst case outcome 85% of the time is going to be 1.9% return on average for each of those five years for portfolio a it's up to 3.6 for B, and then 2.2 for C.

whereas the worst case outcome 95% of the time so this covers more eventualities for portfolio a is now down to 1.1% B is down to 0.4 and C is going to be losing money at a rate of 2% per year for those five years the worst case outcome 95% of the time.

If we then take an example investor that's got a five year time Horizon and has a low risk tolerance. They're likely to be willing to invest such that they can guarantee their returns 95% of the time.

So for this investor, we need to look at the minimum return 95% of the time.

Which tells us that portfolio a is generating the best return.

Under that really poor Market condition.

So for this investor with that very low risk tolerance. They're looking to invest in portfolio a Or alternative way of looking at this is that for an investor which has an investment goal that has a very low risk tolerance. They would put money aside into portfolio a for that specific goal.

If that investor has another goal with a tenure time Horizon, but for which they're willing to take more risk in relation to then we need to look at the 85% worst case outcome. So the minimum return 85% of the time and if we look across that for the second table on the left hand side. So with our 10 year time Horizon, we can see that portfolio a will generate 3.1% return.

At least 85% of the time portfolio B 3.8% And portfolio see 4.1% return. So 4.1% is the best outcome in terms of the minimum return 85% of the time.

So for the goal with that 10-year time Horizon and the higher risk tolerance, we should invest in portfolio C.