Your Investment Objective is a guideline you have chosen to define your goals and help identify your risk tolerance. Risk tolerance is the level of risk of loss you're willing and able to tolerate while pursuing these goals. All investments involve some amount of risk, including the potential for the loss of principal. Generally, equities (stock-like investments) involve more risk than fixed income (bond-like investments). Equities may have the potential for higher returns but also have the potential for greater losses. The higher your risk tolerance and the longer your time horizon, the more you may want to invest in higher-risk investments. Your investment objective is a factor to help define the ratio of equities and fixed income in your account. Increasing the percentage of fixed income may reduce volatility but may also reduce your potential return.
Reducing your exposure to equities and volatility may also reduce the probability of meeting your investment goals. Currently, interest rates are historically low, and returns on fixed income are correspondingly low. Rising inflation erodes the buying power of money, making fixed-income investments even less attractive. Equities in your portfolio may serve as a hedge against inflation. If you think prices will increase, owning equity in companies raising their prices may help offset the impact of inflation.
Your investment objective can usually be found on the first page of your investment account statement. The approach I recommend is to choose an investment objective that strikes a balance between taking enough risk to realistically pursue your financial goals while also allowing you to sleep well at night. Consideration should be given to how well you're prepared to reach your financial goals.
I do not try to time or jump in and out of investment markets. I choose investments I believe may do well in the intermediate to long-term based on economic and market data, adjusting equity exposure to align with a client's investment objective. Moving towards periods of economic weakness, I may adjust equity exposure towards the lower end of the equity range. Moving into periods of economic strength, I may shift the level of equity exposure to the upper end of the range for a specific investment objective. Below are the investment objectives we use for our clients. Investors should regularly review their investment objectives to maintain alignment with their current financial goals and risk tolerance.
Aggressive Growth – Typically 90% to 100% in equities, 0% to 10% in cash and fixed income.
Emphasis is placed on the potential for aggressive growth and maximum capital appreciation. This objective is considered to have the highest level of risk and is for investors with a longer time horizon.
For retirement planning purposes, this is generally appropriate for people with more than ten years until retirement and a higher tolerance for risk. An aggressive growth investment objective may also be suitable for those whose retirement assets are below target.
Growth – Typically 70% to 90% in equities, 10% to 30% in cash and fixed income.
Emphasis is placed on achieving long-term growth and capital appreciation. This objective is considered to have a moderate level of risk and is for investors with a longer time horizon.
For retirement planning purposes, this is generally appropriate for people not yet retired who have a moderate tolerance for risk. A growth investment objective may also be suitable for those whose retirement assets are below target.
Growth with Income – Typically 50% to 70% in equities, 30% to 50% in cash and fixed income.
Emphasis is placed on modest capital growth. Certain assets are included to generate income and help reduce overall volatility. This objective is considered to have a moderate level of risk.
For retirement planning purposes, this is appropriate for investors in retirement who have a moderate tolerance for risk and whose retirement assets are on target.
Income with Moderate Growth – Typically 30% to 50% in equities, 50% to 70% in cash and fixed income.
Emphasis is placed on current income, with some focus on moderate
capital growth. This objective is best suited for investors with little need for capital appreciation.
For retirement planning purposes, this is appropriate for investors in retirement who have a lower tolerance for risk and whose retirement assets are above target.
Income with Capital Preservation – Typically 10% to 30% in equities, 70% to 90% in cash and fixed income.
This objective is generally considered the most conservative investment objective. Emphasis is on generating current income and minimal risk of capital loss.
For retirement planning purposes, this is appropriate for investors in retirement who have a lower tolerance for risk and whose retirement assets are well above target.
