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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 document is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. This document may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

Any research and analysis contained in this document 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. 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. Any views expressed are the views of the fund manager as of the date of this document and do not constitute investment advice. 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. 

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. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of any information, opinion or estimate herein.

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.

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