Your investment objectives
The first step towards a more effective investment strategy is deciding exactly what you are investing for and whether your investment objectives are likely to change throughout your lifetime.
Before you make any investment decisions, you need to identify your key investment objectives.
Are you seeking to achieve all or some of the following?
Income (high income or regular income, for example)
Growth
Income and growth
Ethical investment
Risk versus reward
Most people are aware that there is a close relationship between risk and reward, but getting the right balance between the two will depend on a number of factors, including your investment objectives, how long you want to invest for and the pattern of return you are comfortable in accepting.
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Attitude to risk and reward – key questions
Whether you are ultimately a low, medium or high risk investor will depend on your attitude to a variety of issues:
- Do you have sufficient cash-based funds to cover your short-term spending plans and emergencies – in other words, a rainy day fund?
- Are you investing for income, growth or a mixture of the two?
If you want growth, will you need access to your investment? If so, when?
- If you want income, does it matter if the amount goes up and down?
- How much can you afford to invest? Are you able to save regularly or invest a lump sum (or a series of lump sums)?
- Can you cope with sudden, sharp movements in market prices?
- Would you be able to resist selling your investments just because they fell in value over a short period of time?
- If you have existing investments are they balanced in terms of their risk profile? It makes sense to ensure that they have the right mix of asset classes according to your requirements. Putting too many eggs in one basket can be dangerous, so selecting the right investment balance is crucial.
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