Time Horizon
The first step in determining investment objectives is to consider your time horizon. You may have different time horizons for different goals. Short term goals may be to purchase a house, fund education, or to travel. Long term goals may relate primarily to retirement savings.
Liquidity
Linked to your investment time horizon is the need for liquidity. Some of your investment assets should be able to be accessed without significant fees or significant loss when the need arises. You may have several reasons to keep funds relatively liquid. The most common reason is to ensure funds are available for emergency purposes (three month's salary is the general guideline). Future expenses, such as an income tax liability or the purchase of a boat, are reasons to keep funds liquid. Keeping liquid positions that are cash equivalents allows you to take advantage of opportunities that can arise unexpectedly.
Income
Some individuals have the need to receive income from their investments. Income can be generated through interest income on fixed income investments (Federal Bonds Provincial Bonds, Corporate Bonds, and GICs). Income can also be generated through dividends from common and preferred shares. Most investments which pay income are effected by changes in interest rates. Overall returns are effected by changes in the market value of the underlying investments. The need for monthly or annual cash flows greater than the amount of income generated should involve additional planning. Investments with a greater income level (also known as yield) may also have increased risk.
Long Term Growth
Individuals who do not require income are generally looking to have their portfolio grow. Growth can be achieved through capital appreciation of individual equity positions and through reinvesting income from cash equivalents and fixed income positions. Individuals who begin investing at a younger age often have long term growth as an investment objective. As an individual approaches retirement their investment objective may change to income or a mix of both income and growth. Long term is typically referred to as five to ten years and beyond. Purchasing quality blue chip equities is often associated with long-term growth.
Short Term Growth
Short term growth is often referred to as speculative trading. These investors hope to grow their account in the short term through making more aggressive investments. This may include making more frequent trades and investing in positions that assume more risk. Short term growth is generally referred to purchasing investments with a time horizon of less than five years. Market risk increases as the time horizon decreases. Individuals who select short term growth as an investment objective should be able to withstand a loss of capital.
