What Is an Investment Objective?
An investment objective is used by asset managers to determine the optimal portfolio mix for a client. Investments are chosen using the guidelines of the investment objective.
An investor questionnaire often defines financial goals and objectives and determines the asset allocation within the portfolio based on an individual's time horizon, risk tolerance, and financial situation.
Key Takeaways
- An investment objective is a set of goals that determines an investor's financial portfolio.
- A financial advisor determines the optimal strategy for achieving the client's goals using an investment objective.
- An investor's risk tolerance and time horizon help in determining an investment objective.
Understanding an Investment Objective
Commonly based on one of four strategies that include income, growth and income, growth, or trading, an individual's investment objective clarifies investment ideas to help achieve an individual's financial goals.
The information that an individual provides to determine their investment objective may include annual income and net worth, average annual expenses, timeline to withdraw the money, and the maximum decrease in the value of the portfolio with which the investor is comfortable. The portfolio is tailored according to the answers provided to these questions and a strategy is defined as an investment objective.
Risk Tolerance
A client with a high-risk tolerance interested in growth may have a short-term aggressive portfolio, which includes stocks and trading opportunities. A moderate-risk investor may have a balanced portfolio of growth and income instruments that may include stocks and bonds. A conservative investor with low-risk tolerance may focus on an income-generating portfolio using dividends and bonds.
What Factors Influence an Individual's Investment Objective?
Where Can an Investor Find an Investment Objective Questionnaire?
Can an Investment Objective Change?
As financial circumstances or goals change, it may be helpful for an investor to complete an investment objective questionnaire again and reallocate the investments in a portfolio.