Investment Objectives: Balancing Growth, Income, and Safety

When it comes to investing, one of the key factors to consider is your investment objectives. These objectives determine the type of investments you choose and the strategies you employ to achieve your financial goals. In this blog post, we will explore the different investment objectives and how to balance them for optimal results.

Defining Your Basic Investing Objectives

Your basic investment objectives should come down to three fundamental goals: safety, income, and growth. The trick is to balance them according to your needs and risk tolerance.

Key Takeaways

• Safety: Preservation of capital and safety of principal are important objectives for many investors. This involves choosing low-risk investments that provide stability and protection against loss.
• Income: Some investors prioritize regular income from their investments. They look for assets that generate steady cash flow, such as bonds or dividend-paying stocks.
• Growth: Capital growth is another common objective, especially for long-term investors. They seek investments that have the potential for significant appreciation in value over time.

Secondary Objectives

In addition to the primary objectives of safety, income, and growth, investors may have secondary objectives that are specific to their individual circumstances. These can include tax minimization, liquidity, or other personal financial goals.

Factors to Consider

When determining your investment objectives, there are several factors to consider:

1. Time Horizon: Your investment time frame plays a crucial role in determining your objectives. Short-term goals may require a focus on safety and income, while long-term goals may prioritize growth.
2. Risk Tolerance: Your risk tolerance influences the balance between safety and growth. If you have a low tolerance for risk, you may lean towards safer investments. Conversely, if you have a higher risk tolerance, you may be more comfortable with investments that offer higher growth potential.
3. Assets: Your current financial resources and assets can impact your investment objectives. If you have a substantial amount of capital, you may prioritize growth. However, if you have limited resources, income-generating investments may be more suitable.

Investment Goals: Growth, Income, or Both?

Once you've defined your investment objectives, you need to determine the type of investments that align with your goals. This is where investment goal(s) come into play.

Investment goals can vary depending on your desired outcomes:

• Growth: If your primary objective is growth, you may focus on investments that have the potential for high returns over time. These can include stocks, mutual funds, or real estate.
• Income: If you prioritize regular income, you may opt for investments that provide steady cash flow, such as bonds, dividend-paying stocks, or rental properties.
• Both: Some investors seek a balance between growth and income. They look for investments that offer a combination of capital appreciation and regular cash flow.

Considerations for Robo Advisor Accounts

When opening a robo advisor account, you may need to specify your investment objectives. Here are some considerations to account for when thinking through your investment goals:

• Primary objective
• Time horizon
• Risk tolerance
• Assets

Identifying your objectives and communicating them to the brokerage will help ensure that your investment strategy aligns with your goals.

Conclusion

Investment objectives play a crucial role in determining the success of your investment strategy. Balancing the objectives of safety, income, and growth according to your needs and risk tolerance is key. By understanding your goals and considering the relevant factors, you can make informed investment decisions that align with your financial objectives.