Personalized goal-based investing via multi-stage stochastic goal programming |
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Authors: | Woo Chang Kim Do-Gyun Kwon Jang Ho Kim Changle Lin |
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Institution: | 1. Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology (KAIST), Yuseong-gu, Daejeon 34141, Republic of Koreawkim@kaist.ac.kr;3. Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology (KAIST), Yuseong-gu, Daejeon 34141, Republic of Korea;4. Department of Industrial and Management Systems Engineering, Kyung Hee University, 1732, Deogyeong-daero, Giheung-gu, Yongin-si, Gyeonggi-do 17104, Republic of Korea;5. FinTech Center, Institute for Interdisciplinary Information Sciences, Tsinghua University, 30 Shuangqing Rd, Haidian Qu, Beijing Shi 100084, People’s Republic of China |
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Abstract: | In this paper, we propose a goal-based investment model that is suitable for personalized wealth management. The model only requires a few intuitive inputs such as size of wealth, investment amount, and consumption goals from individual investors. In particular, a priority level can be assigned to each consumption goal and the model provides a holistic solution based on a sequential approach starting with the highest priority. This allows strict prioritization by maximizing the probability of achieving higher priority goals that are not affected by goals with lower priorities. Furthermore, the proposed model is formulated as a linear program that efficiently finds the optimal financial plan. With its simplicity, flexibility, and computational efficiency, the proposed goal-based investment model provides a new framework for automated investment management services. |
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Keywords: | Goal-based Investing Goal Programming Multi-stage Stochastic Programming Automated Investment Management Robo-advisor Financial Technology (FinTech) Retirement planning Defined contribution pension plan |
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