Investment Objective

Reviewed by Vineeth | Updated on Aug 27, 2020

Introduction

An investment objective is one of the few parameters that a financial advisor, asset management company, or Robo-advisor require in order to determine the assets in the portfolio of their clients. An investment objective is the purpose of the client for which he or she decides to invest in a particular asset or security.

Clearly knowing the investment objectives of the clients would help the financial planners to frame a suitable portfolio to their clients, which would be in line with their requirements, investment horizon, and finally their risk-taking abilities.

This would make things simpler as the financial planners will have to focus only on those assets that are in sync with the requirements of their clients rather than every available asset in the markets.

Breaking Down Investment Objective

An investment objective is generally collected by asking the clients to fill a questionnaire. This will contain enough questions and need accurate answers from those filling it in order to determine their requirements, risk-taking abilities, and their investment horizon (how long one would stay invested).

Once the financial advisor receives the duly filled form from their clients, they will carefully evaluate it. Some may take a few hours time to evaluate, while others may need days in order to analyse what has been put onto the form by their clients.

Once the financial advisor has evaluated the questionnaire, they will start picking assets that are in line with the requirements, risk profile, and investment horizon of their clients.

Importance

It is extremely important for a financial advisor to clearly understand the investment objectives of their clients as the decisions being made by them would have a direct bearing on the portfolio of their clients.

For instance, if a financial advisor understands that a client who is a young professional who is willing to invest aggressively and has a long-term horizon, then the advisor would pick stocks that have the potential to offer high returns.