Beyond Returns: Exploring What are the Objectives of Investment Strategies

We’ve all been schooled on the significance of stashing cash since we were knee-high. Think back to that piggy bank – the OG savings spot from your kiddo days. Learning to trim spending and watching money grow – it’s like our childhood crash course in investment.

Investing is a big deal for a bunch of reasons. It’s not just about growing wealth – it’s like a powerhouse for the economy. It boosts growth, creates wealth, and ensures your financial safety net. Whether you’re an individual, a business, or part of the government, investing lets you smartly use resources and get some sweet returns that help everyone out.

What’s Investment?

Investment is basically about putting your money or resources into things like assets or activities, expecting to make some cash, profits, or see an increase in value over time. It’s like tossing your funds into a project with the hope of getting back something in return or hitting certain money goals.

You can invest in all sorts of things – buying stocks, bonds, real estate, mutual funds, or even kickstarting a business. The main idea behind the investment is to build up your wealth, keep your spending power strong, and reach financial goals like planning for retirement, funding education, or achieving financial freedom. People who invest usually weigh the risks and rewards of different options. They look at stuff like past performance, how the market is doing, what the future might hold, and how much risk they’re cool with, all before making a call. The end game? Making smart choices that give the best returns while keeping the risks in check.

What are the Key Objectives of Investment?

1. Safety

Everything you do involves a touch of caution, and investing your hard-earned money is no exception. Safety is a top priority, especially if you’re the type who prefers reliable returns and avoids unnecessary risks.

While no investment is risk-free, some come pretty close. Take government-issued bonds, for instance—they’re a safe bet with minimal risks. Governments don’t just fold up overnight, providing a secure space for your money. Corporate bonds and stable options like treasury bills or certificates of deposits also fall in the low-risk category. If your goal is to keep your investments secure, these options align perfectly, even though the returns may not be as flashy as some riskier counterparts.

2. Regular Income:

Some people invest to get a steady income over the years. Like retirees—they want assets that pay them regularly, like a monthly paycheck. If you’re after income from your investment, there are different things you can go for. We already talked about government bonds and money market things. Stocks that regularly pay dividends are another option. Also, certain plans, like insurance and retirement plans, come with a way to build up wealth and offer you a monthly income. You can choose to get the money right away or when the plan matures.

3. Building Wealth with Capital Gains

Sure, safe returns are nice, but let’s aim for more – wealth creation. It’s not just about keeping what you have; it’s about watching your money grow. Take capital gains, for instance. This happens when you sell something valuable, like shares or gold. As an investor, you’ve got a few tricks up your sleeve:
Build and Let Grow: Create an investment portfolio and let it do its thing over time.
Short and Long Game: Get in the game of buying stocks for both short-term wins and long-term gains.
Trade Smarts: Play the stocks and securities game with some well-informed speculation.

Secondary Objectives of Investment:

1. Diversification:

Diversification is all about spreading your investments smartly across different things like types of assets, industries, sectors, or even different parts of the world. Why? To lower the risk. By diversifying, you’re kind of making sure that a bad day for one investment doesn’t wreck your entire portfolio. Think of it like a safety net tailored to your risk comfort.

2. Liquidity

Some investments act like instant cash converters, while others might not be as swift. Many people prefer investments that can be readily converted into cash, particularly when life surprises us with unexpected challenges. Therefore, if having speedy access to your funds is crucial for you, it could be wise to allocate some of your investments to assets that can be easily traded in the market.

3. Minimising Taxes

Did you know that the taxation of capital gains differs from that of interest or salary-based income? Indeed, the tax rates on such returns are notably favorable compared to those applied to interest or salary-derived income. Instruments such as tax-free savings accounts, the National Pension Scheme, life insurance policies, and tax-saving mutual funds are commonly employed to optimize tax advantages. It is crucial to recognize that actual returns on investment are those that remain after accounting for taxes. Therefore, prudent research into available tax considerations and exemptions is imperative before committing to any investment.

4. Social or Environmental Impact

Certain investors prioritize holdings that align with their ethical values or contribute to positive social and environmental outcomes. This investment objective is often characterized as socially responsible investing (SRI), environmental, social, and governance (ESG) investing, or impact investing. Investors, driven by a sense of responsibility, actively seek opportunities that uphold sustainable practices, promote renewable energy, champion social justice causes, or align with other personally endorsed principles.

Strategies and Considerations to Help Grow Wealth Through Investment

1. Get Your Money Goals Straight

First things first, lay out your financial goals and decide on your timeline. Whether you’re in it for the long haul, like retirement, or aiming for short-term wins like a home or education fund, having clear goals sets the tone for your investment game plan.

2. Tune-Up Your Portfolio

Give your investment mix a regular checkup and tweak it as needed. As some investments shine while others lose their sparkle, your portfolio’s balance can shift. So, take the time to sell or grab some new assets to get things back on track. This not only keeps risks in check but also ensures that your investments stay in sync with your big-picture goals.

3. Keep Adding Money

Add money to your investment fund regularly. Whether it’s putting some cash into your retirement account every month or setting up automatic investments in mutual funds, this steady approach helps even out market ups and downs. It’s like making the most of good deals when prices are low and not buying as much when prices are high, which can lower your overall average cost.

4. Long-Term Focus

Thinking long-term with your investments is a good idea to handle the ups and downs of the market. Usually, stocks and other investments grow positively over time, despite some hiccups. Don’t let short-term market moves push you into quick decisions. Focus on the big picture and the potential your investments have in the long run.

5. Continual Learning and Monitoring

Stay updated on market dynamics, investment trends, and shifts in economic conditions. Periodically assess and track your investment strategies to ensure they align with your goals. Seek advice from financial experts or professionals to gain valuable insights and optimize your investment strategy for better outcomes.