Investment objectives cover how we accomplish most financial goals. These investment objectives are important because certain products and strategies work for one objective, but may produce poor results for another objective. It is quite likely you will use several of these investment objectives simultaneously to accomplish different objectives without any conflict. The other five specific objectives are stated below.
Capital appreciation is concerned with long-term growth. This strategy is most familiar in retirement plans where investments work for many years inside a qualified plan. However, investing for capital appreciation is not limited to qualified retirement accounts. If this is your objective, you are planning to hold the stocks for many years. You are content to let them grow within your portfolio, reinvesting dividends to purchase more shares. A typical strategy employs making regular purchases. You are not very concerned with day-to-day fluctuations, but keep a close eye on the fundamentals of the company for changes that could affect long-term growth.
If your objective is current income, you are most likely interested in stocks that pay a consistent and high dividend. You may also include some top-quality real estate investment trusts (REITs) and highly-rated bonds. All of these products produce current income on a regular basis. Many people who pursue a strategy of current income are retired and use the income for living expenses. Other people take advantage of a lump sum of capital to create an income stream that never touches the principal, yet provides cash for certain current needs (college, for example).
Capital preservation is a strategy you often associate with elderly people who want to make sure they don’t outlive their money. Retired on nearly retired people often use this strategy to hold on the detention has. For this investor,...