What are investment objectives and why do they matter?
Investment objectives range from being very conservative to very aggressive, and it’s a good idea to have one investment objective for some of your money and different investment objective for the rest. In this post, we’ll look at how these different investment objectives apply in different stages of life and in different situations.
1. Capital Preservation
Capital Preservation is the most conservative investment objective and is used to prevent losing buying power due to inflation. This is a good approach when you plan to use your money soon, maybe for a house down payment or purchasing a car, because you wouldn’t have time to let your investment recover from potential losses.
2. Current Income
Current Income is an investment approach used to generate income for meeting day-to-day expenses instead of focusing on building long-term wealth. This is a good approach to use while in retirement.
3. Growth and Income
Growth and Income is an investment objective to utilize when you’ll need to use your money in the next 3 to 7 years. The focus in this approach is to generate current income while continuing to conservatively grow your portfolio.
4. Cautious Growth
Cautious Growth is a good objective for when you’ll need your money in the next 4 to 8 years. You’ll have enough time to let your portfolio grow and still recover from any potential losses.
5. Moderate Growth
Moderate Growth is a little riskier than Cautious Growth, which makes it best for when you don’t plan to use your money for another 7 to 10 years. This time frame allows for a higher risk tolerance because, again, you’ll have time to recoup any losses.
6. Aggressive Growth
Aggressive Growth is a riskier approach, but it can allow for much higher returns than the more conservative objectives. If you’re certain you won’t need to use your investment dollars until 7 or more years down the road, then this is a great approach for maximizing your growth. If you’re not planning to retire for another 30 years, you’ll be able to accept the full risk of market in a way others can’t.
7. Speculative Growth
Speculative Growth is the riskiest way to invest your money, and we wouldn’t recommend this approach until you already have enough money invested elsewhere to meet all your goals. Speculative investing can yield an extremely high return, but you’d have to be okay with never seeing this portion of your money again.
Overall, the biggest thing to keep in mind with investment objectives is that you shouldn’t have all your money working for you in the same way. You’ll have different goals as you go through different stages of life, and you’ll want to find the balance between meeting those goals and taking on the right amount of risk so that your money can work for you.
A lot goes into creating a financial plan that reaches your goals, and you don’t have to figure it out alone. Click below to schedule a meeting with one of our Certified Financial Planners today.