Determine Your Investment Objectives

Investment objectives are like a rudder on a ship. The choice of which investments to hold is determined by your objectives. In other words, know what you want to accomplish from your investments allows you to manage your portfolio more effectively. In addition, your objectives determine the purpose and time period for the investments.

For instance, you may be saving for retirement in five years, while your neighbor may be saving for retirement in 30 years. Although the objectives are the same, the time period, level of risk tolerance, and types of investments held will be very different.

How to Determine Your Investment Objectives

The first step in any plan is to determine short-range, medium-range, and long-range objectives. For example, a young family with small children may have the following objectives:

Short Term:
  • Set up an emergency savings fund.
  • Buy furniture.
  • Save for a vacation.
  • Buy a new car.
Medium Term:
Long Term:
  • Save for children’s college fund.
  • Save for retirement.

Once you have determined your objectives, it becomes easier to see what types of investments to buy, the level of risk that you can withstand, and what your expectations are from your investments.

Asking yourself the following questions can help you formulate your objectives.

  1. What do I intend to use my money/savings for?
  2. How much money do I need to fund my objectives?
  3. Am I committed to making sacrifices to fund these objectives?
  4. What are the consequences if I am not able to fund these objectives?
  5. What do I need to do to bolster my savings to fund these objectives?
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Besides listing your objectives, it is equally important to quantify the amount of money needed to fund them.

By listing your objectives, you can see what you intend to save for and invest in for the future. Included in your short-term objectives should be the capacity to meet financial emergency needs through the establishment of an emergency fund.

Medium- and long-term objectives vary by individual needs. For example, some people want to save as much as possible to grow as large an estate as they can, whereas others may have more specific uses for their future funds.

Once your objectives are completed, your next step would be to go over the Investor’s Checklist.

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