The onset of a new year represents an ideal occasion for investors to take the important time to review the objectives of their investment portfolio(s). Investment objectives focus on the accepted risk-return tradeoff between the expected return investors want (return requirements), and how much risk they are willing to assume (risk tolerance). Moreover, this then determines the asset allocation (cash, fixed income, stocks, other), portfolio diversification, income generation, risk and tax positioning.

To estimate this balance, investors need to consider personal constraints and understand how these impact the risk-return balance they assume. Generally, these include the degree of liquidity required for near term cash requirements; the investment time horizon, near and long term; tax implications, and other special considerations. Once these constraints have been considered, then a proper investment objective can be defined for the portfolio.

Investment Account Manager includes some guidelines that may help investors with setting their investment objectives. This information is meant for educational purposes only, and is not intended to be a recommendation.

Preservation Portfolio:

The main goal of this investment objective is to preserve capital. It should be the reference point for investors with a low tolerance for risk. This objective is frequently considered for portfolios with short-term investment time frames. The portfolio asset allocation mix for a preservation portfolio might be: Cash: 10-20%; Bonds: 60-65%; Stocks: 20%-25%.

Conservative Growth Portfolio:

The main objective of this portfolio is the desire for a modest level of growth over inflation, while protecting the principal. The asset allocation mix for a conservative growth portfolio might be: Cash: 5-10%; Bonds: 50-55%; Stocks: 35-40%.

Balanced Portfolio:

The asset allocation of this investment objective is often split equally between stocks and bonds. The goal of this is to provide a balance between growth and current income. The portfolio asset allocation mix for a balanced portfolio might be: Cash: 5-10%; Bonds: 40-45%; Stocks: 45%-50%.

Moderate Growth Portfolio:

Here the desire is for growth, but less risk tolerance than for a pure equity portfolio. These portfolios have a higher risk level, so a longer time horizon is required. Investors with this objective must be able to tolerate the equity market’s fluctuations. The portfolio asset allocation mix for a moderate growth portfolio might be: Cash: 5-10%; Bonds: 20-25%; Stocks: 65-70%.

Aggressive Growth Portfolio:

This investment objective is considered by investors with a long term investment horizon. They are able to tolerate several back-to-back years of negative returns. This is the highest risk profile, and therefore may provide the highest return potential. Desire for long term growth outweighs the desire for short term capital preservation. The portfolio asset mix for an aggressive growth portfolio might be: Cash: 0-10%; Bonds: 0-10%; Stocks: 80-100%.

It is important to review and maintain the proper allocation to the targeted objective. This is done by asset mix selected,  i.e., the investment types (cash, fixed income, stocks, etc.), depending on the investor’s tolerance for risk.

Provided here are additional resources that may be of help in defining and setting investment objectives:

Defining Your Basic Investment Objectives (investopedia.com)

Investment Objective Definition – Financial Planning (thebalance.com)

We suggest also referring to leading mutual fund companies such as Vanguard, Fidelity and Schwab for a review of their tools/guidelines for setting proper investment allocations.  Target date funds can provide investors with an asset allocation mix to meet investment objective returns.

Investment Account Manager is a Windows desk-top based software tool (since 1985) that provides investors with the tools necessary to manage investment portfolio(s) consistent with your investment objectives.

A free 60 day demo version (no credit card required) is available on our website: Investment Account Manager