An investment objective is a goal derived from a set of questionnaires which answers to the investors taste for risk and investment period. These questionnaires are simple for every investor to know the kind of investment objective they have. Most of the time investors are not aware of the investment goal they must go for. We shouldn’t think that investment is all about taking and negotiating for high interest rates. That is the very basic of it and knowing just that can cause a jeopardy to the plans you have for your money. Good investors seek help and advice from a finance expert. An expert can help you identify with the kind of investment objective you may have at any point in time. This is very important. On the other hand it actually helps fund managers to know how to meet your desired investment objective. Fund managers are professionals who seek to invest your money in the appropriate investment ventures to meet your investment goals. They are always looking at so many things at a time. How to meet the investor’s goals, managing risks, figuring out what perfect and good investment vehicle is available and appropriate, trends in the economy space and many more. Most of the time they work with a research team to be effective and achieve great results. Most investors have lost their money to some financial institutions because they never knew their investment objective and nobody cared to teach them. In this article I want to help you know your objective at every point in time. You will know some questions to answer and even the kind of risk you must take to achieve good investment results.
Capital preservation is an investment objective to help an investor to basically keep and prevent his principal(initial money) from loss in an investment. Most investors will like to preserve their initial amount. But often do not think about that at the initial stage of the investment. Why? This is because when starting the investment it’s all about the “interest rate”. I have come to a realisation that most investors even a high risk investor will like to keep his initial capital. Losing your capital is so painful I can attest. The recent happenings in the financial circle have taught me alot especially on how precious it is to preserve your capital. In preserving your capital you need to look out for low risk investments. Low risk investments include fixed income instruments, money market instruments, mutual funds, unit trust investment, fixed deposits etc. These are investments you should look out for. In looking at these investments, you must be cautious of the interest rates available. Most investments have their interest rate pegged to government instruments like treasury bills, government bonds and the like. If the instrument you are going for has its rate higher than these government instruments ask questions. If it is higher, what it means is that they have taken on risk. So ask which risks have they taken to give you such returns higher than that of government instruments. One of the questions an investment advisor will ask you to know whether you want to preserve your capital or not is, ‘How much risk can you take?’ a. Low b. Medium c. High
Investment Income Objective
Investment Income is an income(interest returns, dividend payments, capital gains, etc) from the sale of any investment asset or profit from any kind of investment vehicle. Everyone wants to earn some income. I am sure thinking of how to make some extra income is one of the items on your schedule that takes much of your time. Warren Buffet made a profound statement that states, “Never depend on single income. Make investment to create a second source.” This clearly resolve the quest to add some sort of income stream to your basic income. An investment can give you a regular but periodic income. This usually helps you to sort out your short term liquidity needs. Income objective are mostly recommended for old age investors who don’t need long term and risky investments. I am not saying a younger age person cannot have such an investment. But the old age deserves it more than a younger person because the old age will not have a regular income as compared to a young age. If you need an income investments you need to look at investment instruments that pay out returns periodically. It could be a treasury bill, treasury bond, fixed deposits, dividend paying stocks, money market instruments, and any other short term investments. These investments typically pay returns periodically like a quarter, half year and yearly. So if you are looking forward to have some investments that can help you sort out your bills and daily expenses look out for these. One of the questions to answer is “when do you need the money?”, “Will you want interest paid at the end of maturity?”
Investment Balanced objective
Balanced investment objective is an investment objective or style to balance the risk and return of the investor. Some investors prefer balancing their risk with their returns to have a balanced return for their investments. They are people who dont really want to take on too much risk but want a little higher returns. They actually want to balance their risk and return. Such investors need to look at long term investments. It will be good for long term projects. In this instance we are looking at a combination of stocks or/and fixed income investments. This is good for young investors who have decades of working time to receive regular stream or income until they retire. It is also good for individuals who have experience with investment and know the possibilities of losses and want take some calculated and well informed investment decisions. Some of the questions you may have to answer is, “What is your risk tolerance or how much risk can you take?” a. Low b. Medium c. High “When will you need the money?”.
Investment Growth Objective
Investment growth objective is an investment objective or style that focuses on gradually increasing the capital of the investor. With growth objective you are looking at a more aggressive approach to investment. The investor here will like to take on much risk than an investor who wants to preserve his capital or even have a balanced objective. To grow your capital with such an objective you need to look at high risk investments. Such as stocks and even various categories of stocks. Investors should always be long term thinkers to have such investments. It is always said and recommended for younger investors to enable them grow their wealth overtime. It is also advised that investors with such objective should have some fixed income investments to cushion them in case of bear market(stock prices are down). This kind of style is usually appropriate for amassing wealth. Some questions to answer in this instance is, “How much risk can you take?”, “How many years will you withdraw or cash out?”, “How will you feel if you lost 10-15% of your money after three or more years?”
To draw the curtains, these objectives will clearly help you to know or identify the investment objective you should have at any point in time. It’s either you are preserving your capital, aiming at having income, balancing your risk and return profile or growing your capital for future projects.