What is ‘investment objective’
The investment objective is information form of the client’s registered investment advisors (RIAs), Robo-advisors and other asset management companies, which helps to determine the optimal portfolio for the client. Investment purposes can also be filled with the individual managing his or her own portfolio.
Mainly on information obtained from completed forms or individual client sets goals or objectives for a client portfolio from the point of view of what kinds of security to include in the portfolio.
Breaking down the ‘investment objective’
Investment objective, usually in the form of a questionnaire, the answers to the questions to determine the client’s aversion to risk (risk tolerance) and how much money will be invested for (period of time). Some of the questions that are included in the form to find out this goal include:
- What is your estimated annual income and financial capital?
- What is your average consumption?
- What is your goal for investing this money?
- When would you like to take your money?
- You need money to achieve significant capital growth when you take it off or are you more interested in preserving core values?
- What is the maximum decrease in the value of your portfolio, you will be comfortable?
- What is your level of knowledge of investment products such as stocks, bonds, mutual Funds, derivatives, etc.?
Individual or client would or portfolio in accordance with the answers to these questions. For example, a client with high risk tolerance, the purpose of which is to purchase a home in five years and is interested in the growth of capital will be short-term aggressive portfolio created for him or her. His aggressive portfolio is likely to have more shares and derivative instruments allocated in the portfolio than fixed income and money market securities.
On the other hand, 40-year-old high income Earner to invest for retirement in 20 years, and who is only interested in preserving capital, can create long-term portfolio of low-risk securities largely consist of fixed income, money market, and any investment that would protect their capital against inflation.
Other factors to consider
In addition to the individual time horizon and risk profile, and other factors that affect the individual investment decision includes: after-tax income; investment taxes such as tax on capital gains and dividends, taxes, commissions and fees on the basis that the portfolio will be actively or passively; portfolio liquidity defines the ease of converting securities into cash in case of emergency; total wealth, which includes assets that are not included in the portfolio, such as social security, expected inheritance, and the value of the pension; etc.
Investment objective, as a rule, are completed to the client until he or she decided to use the services of a financial planner or consultant, as the information that should be included is very sensitive. The goals of the client changes over many years due to major life changes such as marriage, retirement, buying a house, change of income, etc., the portfolio Manager will review the client’s investment goals and, if necessary, rebalancing of the investment portfolio, respectively.
The impact of Robo-advisors
With the growth of financial technology in the digital age, Robo-advisers are ready to take on the role of the human, financial advisors, planners and managers. With the help of a Robo-Advisor, the client may fill out an investment objective form are provided via the application, robot, or web platform. On the basis of the completed questionnaires, a Robo-Advisor to recommend the optimal portfolio for the client at minimal cost, compared to higher charges for traditional advisors. Investment objective the shape of the robot-adviser similar to that contained in a traditional setting. However, the choice will be for either automated or human counselor to the client at its discretion and how comfortable he is with investment products.