What is an investment objective?
An investment objective is the role that investment, or multiple investments, play in helping you achieve your financial goals. Once you know your goal, it can guide you toward specific asset classes or securities. These categories help you build a portfolio that meets your objectives.
What are the types of investment objectives?
There are three main types of investment objectives: growth, income, or growth and income.
Growth
Do you have a goal that is at least 10 years away? Are you willing to take risks when investing? If so, a growth objective may be suitable for you. This objective gives you many options for investment. You might consider stocks, stock mutual funds, or exchange-traded funds (ETFs).
Income
Are you interested in generating income through investing? Look at investments like dividend-paying stocks or bonds. You can also choose mutual funds or ETFs that invest in these types of securities. You might also opt for a mix of securities that generate income.
Growth and Income
You might want a combination of long-term growth and income. This could be like an account that grows in value over time and also pays dividends. This will provide ongoing growth along with a regular income every month or quarterly.
Other investment objectives
You may also have more than one investment objective. Your primary goal could be growth or income. But alongside that, you might also be interested in reducing your tax bill or avoiding risks.
Taxes
You may want to invest in assets that come with lower taxes. This means that less of your gains are lost to taxes, which increases your investment returns.
Risks
Are you a conservative investor? Or maybe you’ve just retired? In this case, you might not be interested in greatly increasing the value of your portfolio. You might be more concerned with reducing risks so you know you won’t lose money. This is often referred to as “preservation.”
How do you find your investment objective?
Before you start building a portfolio, begin by asking yourself some questions: What is the purpose of your money? What do you want to do with it? How much time do you have until you need this money? How much risk are you willing to take to see returns above average? Do you want your money to grow? Do you want to maintain its current value?
The answers you come up with will help you find the investment timeframe and your risk tolerance. These are the fundamentals of your investment objective.
For example, the purpose of your money might be for retirement. You learn that you have at least 20 years until this goal can be achieved. This means you are a long-term investor. You have time to take on some risks. In this case, a growth objective may be the right fit for you.
Conclusion
Before choosing types of investments, start with your investment objective. This will help you make the right decision about how to invest your money. Each investor’s needs are unique to their timeframe and risk tolerance. These are the key factors to consider when determining your investment objective.
Source: https://www.thebalancemoney.com/invest-objective-definition-and-examples-2466572
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