Updated Sep 4, Basic Investment Objectives: An Overview The options for investing your savings are continually increasing, but every one of them can still be categorized according to three fundamental characteristics: safety, income, and growth.
Those options also encompass the objectives of any investor.
While the investor may have more than one of these objectives, and may well have all three, the success of one comes at the expense of the others. The first task of any price action for binary options video individual investor is to find the correct balance among these three worthy goals.
Safety It is said that there is no such thing as a completely safe and secure investment. But you can get pretty close.
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Investing in government-issued securities in stable economic systems is one. You have to envision the collapse of the U. Next in safety are AAA-rated corporate bonds issued by large, stable companies. Such securities are arguably the best means of preserving your principal while receiving a pre-set rate of interest.
Types of Insurance in India 3. Cash Equivalents These are investments that are highly liquid and can easily be converted into cash.
The risks are similar to those of government bonds. You'd have to imagine IBM or Costco going bankrupt in order to worry about losing money investing in their bonds. Key Takeaways Any investment can be characterized by three factors: safety, income, and capital growth.
Every investor has to pick an appropriate mix of these three factors. One will be preeminent.
The appropriate mix for you will change over time as your life circumstances and needs change. Extremely safe investments also are found in the money market. Safety comes at a price.
The returns are very modest compared to the potential returns of riskier investments. This is called "opportunity risk. There real and financial investment objects market is, to some extent, interest rate risk.
You have just lost money in terms of real spending power. That is why the real and financial investment objects market safest investments are short-term instruments such as 3-month and 6-month CDs.
And those safest investments pay the least of all in interest. Income Investors who focus on income may buy some of the same fixed-income assets that are described above.
But their priorities shift towards income. They're looking for assets that guarantee a steady income supplement.
- While certain products and strategies work for one objective, they may produce poor results for another.
- What is Investment: Meaning, Categories & Objectives of Investment
And to get there they may accept a bit more risk. This is often the priority of retirees who want to generate a stable source of monthly income while keeping up with inflation. Government and corporate bonds may be in the mix, and an income investor may go beyond the safest AAA-rated choices and will go longer than short-term CDs.
- Defining Your Basic Investment Objectives
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The ratings are assigned by a rating agency that evaluates the financial stability of the company or government issuing the bond.
BBB-rated bonds carry a medium risk but more income. Below that, you're in junk bond territory and the word safety does not apply.
Investment is the employment of funds with the aim of getting return on it.
Income investors may also buy preferred stock shares or common stocks that historically pay good dividends. Capital Growth By definition, capital growth is achieved only by selling an asset.
Stocks are capital assets. Barring dividend payments, their owners have to cash them in to realize gains. There are many other types of capital growth assets, from diamonds to real estate.
What they all share is some degree of risk to the investor. Selling at lower than the price paid is referred to as a capital loss.
- Four Main Investment Objectives
- Options markets
The stock markets offer some of the most speculative investments available since their returns are unpredictable. But there is risky and riskier.
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Growth stocks are for those who can tolerate some ups and downs. These are the fast-growing young companies that may grow up to be Amazons.
Or they might crash spectacularly. The dividend stars are established companies that may not grow in leaps and bounds but pay steady dividends year after year.