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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. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

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