What are investment objectives and why are they important?
Nov. 30, 2023
3 min read
What we'll cover
How to define your investment goals
Why investors look at their time horizon
How to assess your risk tolerance
Having a concrete reason for investing can help you plan out your portfolio and motivate you to stay the course.
Let's review four factors to consider when setting your investing objectives.
1. Primary objective
Your primary objective is your overarching investment purpose. For example, you may identify an exact goal, such as retirement, or you might have a more general goal, such as building wealth for future generations.
It's okay to have multiple goals — most investors do. You can tackle those in different ways, for instance, by grouping them based on similar time horizons or separating them into different accounts. Just make sure you have a strong sense of what you're investing toward.
Consider your time horizon. When do you think you'll need the money you've invested? For example, you may decide you want to retire when you're 60. If that's 20 years away, you'd invest your money with that specific timeline in mind, but if it's five years away, you'd have a much shorter time horizon.
You might choose to have different types of investment products based on your time horizon. For example, one bucket of products may contain funds for short-term goals, and a second one may contain investments focusing on long-term growth. A third may contain income-oriented investments with tax benefits built in, such as those in a Roth IRA.
The better you can articulate your time horizon, the more you or an advisor can target the right goals for your needs.
Your personal preferences can drive your risk tolerance level, and so can your timelines for your various investing goals. Aggressive investors may prefer to risk more money to go for potentially better returns. In contrast, a conservative investor might opt for investments with a greater safety net, such as bondsor exchange-traded funds. However, it's important to remember that no investment offers complete guarantees.
Consider your objectives, time horizon and risk tolerance to help you identify the best assets for your portfolio.
A few examples of investment assets are stocks, bonds, mutual funds, ETFs and retirement savings accounts like 401(k)s and IRAs. Before you invest in them, it's important to familiarize yourself with each and how they might contribute toward your goals.
Identify your objectives
Identifying a goal as an investor gets you in touch with what you'd like to accomplish. It might work to sit down and write out as many goals as you can think of. Consider everything, from investing for retirement to supporting your parents in their old age. Only by doing that can you determine your next steps.
Before you invest, you should carefully review and consider the investment objectives, risks, charges and expenses of any mutual fund or exchange-traded fund (ETF) you are considering. ETF trading prices may not necessarily reflect the net asset value of the underlying securities. A mutual fund/ETF prospectus contains this and other information and can be obtained by emailing email@example.com.