Investment Objective

An investment objective is a clear statement of financial goals that guides how a portfolio is built and managed. Financial advisors and asset managers use an investor’s objective to determine the appropriate strategy, asset allocation, and specific investments consistent with that goal.

How it works

• An investor (or advisor) completes a questionnaire covering time horizon, risk tolerance, income, net worth, expenses, withdrawal timeline, and acceptable portfolio drawdown.
• Based on those answers, the advisor defines an investment objective (e.g., income, growth, growth-and-income, or trading) and designs an asset allocation and investment plan to pursue the objective.
• The plan is implemented through investments chosen to match the objective and periodically reviewed and adjusted as circumstances change.

Common investment objectives

• Income: Prioritizes steady cash flow from dividends, interest, and bonds.
• Growth and income: Seeks capital appreciation plus some regular income.
• Growth: Focuses primarily on increasing principal value over time, typically via equities.
• Trading (short-term): Targets short-term gains through active trading strategies.

Risk tolerance and portfolio construction

Risk tolerance is the degree of volatility an investor can accept. Typical distinctions:
– High-risk (aggressive): Emphasis on growth—greater allocation to stocks and active trading opportunities.
– Moderate-risk (balanced): Mix of equities and fixed income to pursue growth with risk mitigation.
– Low-risk (conservative): Focus on capital preservation and income—greater weight on bonds and dividend-paying securities.

Other factors that influence an investment objective

• Time horizon (how long before funds are needed)
• Current income and overall net worth
• Taxes (capital gains, dividends)
• Fees and commissions, especially for active management
• Other wealth sources (pensions, Social Security, expected inheritance)

Finding and using questionnaires

• Many brokerages and financial firms offer free investor questionnaires online.
• Review any questionnaire’s assumptions, limitations, and terms before relying on it.
• Because questionnaires often require sensitive financial details, a formal investment objective may be finalized when working directly with a financial planner or advisor.

Can an investment objective change?

Yes. As financial goals, income, risk tolerance, or life circumstances change, investors should revisit their questionnaire and rebalance or reallocate their portfolio to reflect the new objective.

Key takeaways

• An investment objective defines the goals and constraints that shape a portfolio’s strategy and asset allocation.
• Time horizon and risk tolerance are central inputs; taxes, fees, and total wealth also matter.
• Objectives should be documented, implemented thoughtfully, and reviewed regularly to stay aligned with changing circumstances.