QVGS Goals Waterfall
Investment Plan for the purpose of funding and financing goals
Overview
The QVGS Waterfall is designed to fulfill goals by assigning them different attributes in order to rank them. Prioritizing goals allows the investor to fund and achieve multiple goals in parallel by setting clear targets. This means the long-term and time-critical goals get funded first after which the incremental funding can spill into aspirational short-term goals.
Goal Attributes
Goals are Personal
Individuals and Families have multiple goals that spark their interest. However, the money available for these goals is always finite (more money means more number of goals which may be more expensive). It is often difficult to choose between 2 very “similar” goals when the funding is finite. This requires prioritization of one goal over the other so as to complete at least the more important ones first than others. The QVGS Goals Waterfall assigns attributes to various goals in order to make choices easier for individuals and families to prioritize. We have identified 4 essential attributes.
Funding | Financing
Defining the end-use of capital for consumption or preserving principal.
- Funding goals require that principal and gains be retired and consumed when the goal is achieved. These are typically large value goals and are a one-time spend such as buying a house, a child’s education, or purchasing a car.
- Financing goals are ones that can be recurring and require the preservation of principal and harvesting the gains from time to time. Typically small value goals (in comparison to the entire budget of the investor) such as a recurring vacation or a small luxury purchase are considered financing goals.
Essential | Aspirational
Defining goals on the basis of needs or desires.
- Essential goals are need-based and cannot be compromised at any cost. One such example is a child’s education. Another example is purchasing the first house.
- Aspirational goals correspond to desires and are lower on priority for an investor. Examples such as a larger house or an annual vacation are aspirational.
Time-Critical | Open-ended
Defining the criticality of the target date.
- Time-critical goals need to be achieved by a certain date. Typically the date for such goals cannot be extended as it corresponds to an event. Again an example is a child’s education which will specifically come by a certain date in the future.
- Open-ended goals on the other hand can be achieved later than the desired date and are flexible. For example an investor can delay a luxury purchase if required.
Long | Medium | Short-term
Defining the time frame in which the goals is expected to be fulfilled.
- Long-term: 10 years or longer
- Medium-term: 5 to 10 years
- Short-term: 3 to 5 years
Key Features
Warterfall Design Principles
Funding vs. Financing
Funding portfolios can be used for Financing goals but not vice versa.
Essential vs. Aspirational
Essential portfolios can be used for Aspirational goals but not vice versa.
Time-critical vs. Open-ended
Time-critical portfolios can be used for Open-ended goals but not vice versa.
Long, Medium or Short-term
Short-term portfolios can be used for Medium and Long-term goals and Medium-term portfolios for Long-term goals but not give versa.
Investment Objectives
Core & Satellite Objectives
of the QVGS Goals Waterfall
Core Objectives
I. Growth
Create wealth (through human efforts) through various economies
II. Accumulation
Access wealth (for contingencies) as and when required
Satellite Objectives
A. Capital-appreciation
Multiplying capital faster than the market by taking measured risks
Portfolio Cascade
Core & Satellite Portfolios
of the QVGS Goals Waterfall
Core Portfolios
Useful for goals with attributes:
- Funding – capital is consumed at the end
- Essential – needs, not desires
- Time-critical – need to be reached by a certain date
- Medium-term – 5 to 10 years
Satellite Portfolios
Useful for goals with attributes:
- Funding – capital is consumed at the end / Financing – principle is preserved and profits are consumed at the end
- Aspirational – desires, not needs
- Time-critical – need to be reached by a certain date
- Medium-term – 5 to 10 years
QVGS Waterfalls
Ready-made Investment Plans
for Individuals and Families
Waterfall Model
The pecking order of funding
The Waterfall Model is a method of splitting available funding among different needs and desires that allow for funds to follow an uneven distribution. The Waterfall Model can be thought of as a series of pools that fill up with the available funding and then once full, spill the excess funding into the additional pools that are lower in the pecking order (of needs and desires).
While some of the needs and desires are common to most individuals and families, others can be highly personalized to the specific investor. The key to successfully investing, in order to fulfill the needs and desires, an investor should be able to prioritize them in a structured and logical way without biases and events clouding the judgment of the investor.
Some of the needs are essential and weaved so deeply into the structure of life, that they may be overlooked easily while the investor is focussed on the more obvious aspirational desires. The solution to defining the pecking order is to follow an investment plan which covers the expected and unexpected aspects of investing for individuals and families.
