Investment Objectives

What Is an Investment Objective and How Can You Form One?

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An investment objective, in regard to personal financial planning, is the purpose a particular portfolio serves for the individual's or the investment advisory client's financial needs. Once the objective is determined, it will then dictate what particular asset classes and security types are needed to fulfill the purpose of the portfolio.

In different words, the investment objective is the fundamental reason you are investing. An investment objective can also define how a mutual fund invests its portfolio. For example, with regard to mutual funds, the stated investment objective indicates a particular fund’s investment goals, based on the wording in a fund's prospectus.

Determine Investment Objective for Individual Investors

You investment objective can be considered the answer to the basic questions that are smart to ask before you begin building a portfolio. What is the purpose of your money? What do you want it to do? How much time do you have until you need this money? How much risk are you willing to take to achieve above-average returns? Do you want your money to grow or do you want to preserve it's current value?

The answers to these questions will help you arrive at your investment time horizon and risk tolerance, which are the fundamental elements of determining your investment objective. For example, if the purpose of your money is for retirement, and you estimate you have at least 20 years until this investment goal can be reached, you have a long-term objective. Assuming your risk tolerance is not low, the appropriate mutual fund investment objective would be generally categorized as growth. Therefore you'd look at growth stock mutual funds, as well as other funds to diversify your portfolio.

Examples of Investment Objectives and Basic Types

Your investment objective can be considered growth but it may also be income or preservation if you're retired, or it can be some combination or variation of those types. For example, some investors want to grow their account value over time but they also want to take some income from their investments. Therefore, this investment objective can be considered growth and income. Preservation objectives will usually seek to keep account values stable or, at a minimum, grow at a rate equal to the expected rate of inflation, which is usually around 3.5% to 4.0% for investing purposes.

Before you begin investing, be sure to determine your own investment objective. Then you will be able to match your objective with that of the mutual funds to buy that are appropriate for you and your goals.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.