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Most people have investments of some kind, even if these are limited to a
savings account. But having investments – even if you have
lots of
them – does not necessarily mean you have investment
objectives. And
yet you could be getting a lot more out of your investments
if you have
suitable objectives in place as well |
Let’s take a closer look at this topic to see what we can make of it. The important thing to remember is that what is right for one person may be completely unsuitable for another. I might want to invest in a particular account that will bring me a good amount of interest at the end of a five year term for example. In contrast you may want to have an investment you can cash in after just two years. It stands to reason then that the same investment is unlikely to be suitable for us both.
There are lots of objectives you could set for yourself, depending on your own financial situation and what you want to achieve. As we have already seen, time is an important factor for many people. You may have a particular event you would like to save for – a wedding, university fees or a world cruise when you retire. Even building up a capital amount to help your retirement income is an excellent investment objective.
But there are other goals as well and your decisions will influence your choice of investment vehicle and the strategy that you will wish to follow. For instance you may be uncomfortable with taking a huge amount of risk because you want to preserve your initial capital. I on the other hand may be more prepared to take a bigger risk with my capital in order to try and gain a bigger reward. In this sense although we are both looking for the best investment returns possible, they will be very different because we both have a different approach to risk.
Income is another worthwhile thing to bear in mind. This is particularly true of people who are on the verge of retirement. Since you will no longer have a significant career income to rely on, you will have to adjust to a fixed income which is very likely going to be a lot smaller than you have become accustomed to.
You may therefore want to consider investing in a product that provides you with a regular income rather than an amount of interest paid out on an annual basis. Always check all the options and find an investment vehicle that suits your risk level and also the amount of money you have available. Goals have to be realistic. There is no possibility of finding an investment vehicle that generates a return significantly above the average that does not contain a higher than average element of risk. Remember the old adage that if it seems too good to be true, it probably is.
Whatever investment objectives you have in place, it is wise to remember that they can change and you should therefore make a point of reviewing your investment objectives to take account of differing personal circumstances. You should also think about having more than one investment objective. For example one objective may be to make the most of all the tax free investments you can have in retirement. Similarly you could think about spreading any amount of risk you take over several investments, rather than putting everything in the one place. All of these elements will help you to focus your efforts and get the most out of whatever objectives you have.
Another element you need to think about with regard to risk is your age. Someone aged 65 will obviously have a very different outlook and attitude to riskthan someone who is in their mid twenties. Every investment is different and your choices in your twenties could have been very different to what they are now.
Take the stock market for instance. We all know that the value of shares can fluctuate hugely over time; this is why we generally don’t hold onto them for only very short periods of time. We know they are more likely to appreciate in value over the course of several years.
But since this is the case they may not be as suitable as a new investment for someone who is already retired. There are many differing opinions of course, but you need to think about time frames and how long you are prepared to invest in a fund or in individual shares, and what you can expect to get out of them in the meantime in terms of dividends. Incidentally, whether you invest in funds or a portfolio of individual shares is largely a question of how much capital you have available to invest. The more capital you have the greater number of shares you can invest in and therefore the greater the spread of risk. Anything less than £250,000 should normally be placed in a fund to reduce the level of risk associated with investing in a relatively small number of companies.
Don’t forget the issue of how easily you could liquidate your assets as well. Different investments rank differently in this way. For example the cash in your pocket is already in its most liquid form. By contrast it would take you slightly longer to liquidate the assets you have in your bank account and even longer to sell an investment in a fund. And at the other end of the scale there is property. You have cash tied up in this asset, but it could take months to unlock it all.
You can see that in order to create specific investment objectives you need to think about all the relevant aspects of your life and financial situation. These facts are the ones that will lead you towards the best financial solutions for you. Never copy what someone else is doing, because they will be in a very different situation to you. Only by focusing on your own needs, assets and goals can you hope to set the best investment objectives for your particular circumstances.
Whatever your investment objectives you should always seek appropriate professional advice before putting any investment plan into action.