3 Fundamental Objectives When It Comes To Investing

by Andrew McGuinness  //  feb. 08, 2018

There are tons of options for investing your assets; it has never been easier to get into making smart investments than it is today. But when learning how to become a successful investor, it’s important to understand your fundamental objectives and expectations, or what you want to get out of your investments. There are three fundamental objectives you can choose from: growth, income, and safety. An investor can shape their investments and trades around balancing these three objectives or prioritizing one over the others.

Let’s discuss these objectives, so you can better understand the type of investor you want to become, and the type of strategizing you need to adopt.

Growth

Growth is the first thing most people think about when they turn to investment: everyone wants to see their capital grow. Investments are primarily means of increasing the value of your wealth, or experiencing capital gains. When you sell your investment at a price higher than the acquired value, than you make a capital gain; a capital loss occurs when you sell at a lower price. Investors who want to prioritize achieving capital gains should therefore focus on portfolios that offer long-term growth, rather than short-term, fixed investment returns.

To grow capital, most investors turn to common stock, such as securities; these have low yields but high potential for value growth. This means participating in speculative investments, in which the investments are in areas that have unpredictable yet bright futures. One benefit of capital gains is that they have tax advantage with lower tax rates in most areas. This is because these investments are generally for small business growth, something governments want to incentivize by lowering taxes for capital gains.

Income

Income is the objective prioritized by investors who choose safe investments that require little to no speculation. The amount of income that can be achieved depends on the safety of the investment; the higher the safety, the lower the yields.

To increase investment return or income from investments, investors should look towards preferred shares or corporate bonds that have low investment ratings. AAA bonds are the safest investments, but they generally offer lower income return than A or AA bonds. Lower-rated bonds (such as BBB) also have some degree of risk but higher potential for returns, while junk bonds have the highest risk and the highest potential yields.

If you are an investor who is looking for a steady stream of income with no stomach for risk, then this is the fundamental objective for you. These are smart but low-risk investments, allowing you to keep your savings up to date with the rate of inflation of the economy.

Safety

While it is impossible to find a perfectly safe or secure investment—after all, risk is the name of the game when it comes to trading 101—you can do your best to make sure your investments and portfolio are as safe as you can possibly make them. There are a number of ways to do this, such as buying government-issued securities during a steady economy, or turning to large, stable, and healthy companies that are selling corporate bonds. These are usually the best ways to achieve a maximum guarantee of retaining all of your invested capital while making a certain profit.

The money market can also offer the safest investments. Bankers’ acceptance slips, commercial paper, certificates of deposit, treasury bills are some of these securities. There is also the fixed-income market, and other types of corporate and government bonds.

If safety is your primary objective, then find the lowest-risk investments out there. Invest only in the government on in large corporations that you are familiar with. While your returns may not be remarkable, you can sleep knowing you have the smallest chance to lose everything.





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