The importance of saving money is taught to you from a young age. Remember the piggy bank where you stored money when you were little? From cutting down on expenses to growing money by saving it, these are all elements of investment you learn from your childhood.
As you grow, you discover a plethora of investment options meant to fulfil your life goals. But, often, many people don’t know where to begin. Defining your objectives of investment is the core of a good investment strategy. Whether it is a child’s marriage, overseas education, buying your own house, or retiring, these goals can be grouped into categories that are akin to the kinds of investment and their goals. Before we dive deep into them, let’s look at the meaning of investment.
Investment Meaning
If you thought investment simply meant saving money, then that may not be accurate. Investment refers to putting your money in assets that appreciate or are capable of generating returns. It is an activity done to grow your money and not merely save it. For instance, buying stocks that give you dividends or investing in a property whose value will increase.
Today, you have several types of investments, like stocks, bonds, life insurance, exchange-traded funds, and real estate, to name a few. Each of these investment options comes with its own objectives. While some provide you security, others enable you to yield returns.
Understanding these elements of investment and weighing them against your purpose of investment can help you choose the right mix of assets to suit your unique needs.
Investment Objectives
Every kind of investment comes with its own set of features that translate into your goals. These aspects and goals can be categorised into primary and secondary objectives as explained below:
Primary Objectives of Investment
- SafetyThis is one of those goals that take precedence in everything you do. From driving to earning money, safety is always in the picture somewhere. Likewise, you want your hard-earned money to be safe when investing it. This is especially true if you are a conservative investor who wants their returns on time and is not willing to take risks.
Although no investment is entirely safe, some can get close. For instance, government-issued bonds remain a secure investment with less risks. A government does not collapse now and then. So, you don’t have to worry about any loss to your investment. In addition to these, corporate bonds and money market instruments like treasury bills or certificates of deposits are considered safe.
See AlsoWhat are investmentsIf your purpose of investment is security, then you can pick these investments that carry the same objectives. However, the returns on these are modest as opposed to other types of investment.
- Regular IncomeCertain investors seek opportunities that allow them to generate an income supplement for years to come. Retirees are a great example of this, as they look for assets that can get them a paycheck every month.
If income is one of the elements of investment that you are looking for, then there are several types of assets that mirror the same. Some of them, like government bonds and money market instruments, are mentioned above. Others are stocks that hold a good record of dividend payments.
Apart from these, certain plans, such as insurance savings plans and retirement plans, come with a wealth accumulation component to them. Along with the benefit of life cover to safeguard your loved ones, most savings and retirement plans offer monthly income. You can choose to receive the funds immediately or on maturity.
- Capital GainsThis feature of investment is coupled with wealth creation. Safe returns are one thing; you also want your money to grow. Typically, capital gains occur when you sell an asset. For instance, you sell shares of a company or gold. As an investor, you can achieve this in three ways:
- By building an investment portfolio and letting it grow over a period of time
- By buying stocks to make short and long-term gains on them
- By trading stocks and securities through speculation
- By building an investment portfolio and letting it grow over a period of time
Secondary Objectives of Investment
- LiquidityHaving sufficient funds to provide for emergencies is a key aspect of investment. The ability to convert an asset into cash by selling or trading them instantly with little to no risk is called liquidity. Liquid assets include bonds and life insurance savings plans that can help you meet your immediate requirements by easily liquifying your investment in them.
- Minimising TaxesMost people also invest to save on taxes. Several kinds of investments can help you lessen your income tax* burden. Life insurance plans like ULIPs, and retirement and term insurance policies are popular options apart from tax*-saving mutual funds and national pension funds. Most of these are eligible for deductions, which help you minimise your taxes.
As an investor, there’s not one purpose of investment that you might be looking at. Usually, your best choice is to have a balanced mix of all of them to meet demands in different situations. And these objectives of investment can change.
Conclusion
There are different types of investments that offer the benefit of capital gains, such as stocks, real estate, gold, diamonds, etc. At the same time, each of them carries a considerable amount of risk.
Blue chip stocks provide modest income in the form of dividends while also carrying the potential for capital gains over time. Growth stocks, on the other hand, are volatile and riskier. But they can provide greater returns. Mutual funds or exchange-traded funds are other instruments to fulfil this goal.
You can also get life insurance like ULIPs that enable you to create wealth in the long run while securing your loved ones from uncertain situations.
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