Identifying the Objectives of Investment
There are several objectives that you should consider when investing. Some investors are conservative, and their only goal is to have a certain amount of capital at maturity, without suffering any loss. The downside of a conservative investment strategy is that it is not able to keep up with inflation, and it often fails to give a decent return. However, this is a good strategy for conservative investors, as you can make investments with low risk and high return, without having to worry about your financial security.
Many investors will place a high priority on short-term goals, such as buying a house. Other investors may want to accumulate capital for their future needs. Some may be interested in accumulating capital for a longer time, such as for retirement, while others may be looking forward to a more secure financial future for the family. And, still others may be interested in achieving financial independence in the long-term. In such a case, diversification is the best course of action.
An investor’s objectives should be based on their needs and goals. Growth-oriented investors may focus on accumulating capital for their needs in the future. However, a higher-risk investment will have a higher potential for growth. In addition to the risks and rewards, the objective should also fit with the investor’s risk tolerance. For example, a safe investment could be cash equivalents, money market funds, or short-term government debt. While interest rates on these investments may fluctuate, the value of the principal will remain stable.
The time horizon and risk-aversion factors of an investment will determine the objective of the fund. For example, an investor saving for retirement may want to invest in a growth-oriented fund, but a growth-oriented strategy may be better suited to an investor who will be investing for at least 20 years. If he plans on retiring in the next decade, he or she may want to choose a growth-oriented option.
Similarly, investors have different priorities when investing. Some are looking to accumulate capital for their current needs, while others want to reach financial independence in the future. They may even have an overall objective of investment based on their risk tolerance. A diversified portfolio is the best way to meet multiple objectives. Ultimately, the goal of an investor is to make money for his or her lifestyle. If your financial situation allows it, you should choose investments that are appropriate for these goals.
In general, most investors will have a high priority on short-term goals, such as buying a house. In contrast, some investors will invest for long-term needs, such as a post-retirement period or the education of their child. Other investors will have more diverse goals, such as making a good investment strategy that meets the long-term needs of a person. There are no right or wrong investment objectives, as long as you have a plan in place.