Investment Objective

What Is an Investment Objective?

An investment objective is a client information form used by registered investment advisors (RIAs), robo-advisors, and other asset managers that helps to determine the optimal portfolio mix for a client. An investment objective may also be filled out by an individual managing their own portfolio.

Understanding Investment Objectives

An investment objective is usually in the form of a questionnaire, and answers to the questions determine the client’s aversion to risk (risk tolerance) and how long the money is to be invested for (time horizon). Basically, the information retrieved from the form filled out by the individual or client sets the goal or objective for the client’s portfolio in terms of what types of security to include in the portfolio.

Some of the questions that are included in the form to figure out this objective include:

An individual or client would have their portfolio tailored according to the answers provided to these questions. For example, a client with a high-risk tolerance whose goal is to buy a home in five years and is interested in capital growth will have a short-term aggressive portfolio set up for them. This aggressive portfolio would probably have more stocks and derivative instruments allocated in the portfolio than fixed income and money market securities.

On the other hand, a 40-year-old high-income earner investing to retire in 20 years and who is only interested in preserving capital may construct a long term portfolio with low-risk securities heavily comprised of fixed income, money market, and any investment that would protect capital against inflation.

Special Considerations

In addition to an individual’s time horizon and risk profile, other factors that influence an individual’s investment decisions include:

An investment objective will typically not be completed until a client has decided to use the services of the financial planner or advisor since the information that will be provided is highly sensitive. As the client’s goals change over the years due to a major life change such as marriage, retirement, home purchase, change in income, etc., the portfolio manager will re-evaluate the client’s investment objectives and, if necessary, rebalance the investment portfolio accordingly.

Investment Objectives and Robo-Advisors

With the rise of financial technology in the digital era, robo-advisors are poised to take over the roles of human financial advisors, planners, and money managers. Using a robo-advisor, a client can fill out the investment objective form provided through the robo app or web platform.

Based on the filled out questionnaire, the robo-advisor would recommend an optimal portfolio for the client for a minimal fee, compared to the higher fees charged by traditional advisors. The investment objective form provided by a robo-advisor is much similar to the one provided in the traditional setting. However, the choice of going for either an automated or human advisor is up to a client’s discretion and how comfortable they are with investment products.