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CONTRIBUTORS

Deep Ratna Srivastav

Chief AI Officer
Franklin Templeton Technology

Max Gokhman, CFA

Deputy Chief Investment Officer
Franklin Templeton Investment Solutions

Lavina Mehta

Goals Based Solutions
Franklin Templeton Investment Solutions

Sirisha Gorjala

Head of Digital Products
Franklin Templeton Technology

Executive summary:

Franklin Templeton’s Goals Optimization Engine (GOE®) utilizes dynamic programming, a mathematical technique that optimizes investment asset allocation by working backward from the end financial goal.

Unlike Monte Carlo simulations,1 which assess the probability of success for a given portfolio, GOE uses dynamic programming to determine the optimal asset allocation that achieves a specific goal and how it should evolve over time.

Key benefits:

  • Delivers personalized, actionable goals-based investment allocations.
  • Selects optimal portfolios for success rather than just measuring the probability of success.
  • Adapts asset allocations over time based on market changes and life events.

Introduction

Franklin Templeton’s Goals Optimization Engine (GOE®) is built on a powerful idea: Investment advice should be dynamic, personalized and anchored in client goals. At the core of GOE is technology rarely seen in financial planning software—dynamic programming.

While many advisors are familiar with Monte Carlo simulations as a way to assess the probability of success, GOE takes a fundamentally different approach. This paper explores how dynamic programming works inside GOE, why it’s better suited to optimizing client outcomes, and how it compares to Monte Carlo analysis.

For a broader view of how GOE connects financial planning with portfolio construction, we encourage readers to explore our companion paper, “The missing link: Connecting goals-based wealth management to investing.”

Endnotes

  1. Monte Carlo analysis consists of simulations that help to explain the impact of risk and uncertainty in making forecasts by calculating the probability of different outcomes when certain variables, for example, the rate of return on an investment, are allowed to fluctuate randomly.
     

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.

Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments.

Hypothetical performance results may have many inherent risks. One of the limitations of hypothetical performance is that they are constructed with the benefit of hindsight. Alternative simulations, techniques, modeling or assumptions might produce significantly different results. Actual results will vary, perhaps materially, from the hypothetical results presented in this document. No representation is being made that any account will, or is likely to, achieve profits or losses similar to those described here.

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IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

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