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 his or her own portfolio.

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.

An investment objective is usually in the form of a questionnaire, and answers to the questions asked determine the client’s aversion to risk (risk tolerance) and how long the money is to be invested for (time horizon). Some of the questions that are included in the form to figure out this objective include:

• What is your estimated annual income and financial net worth?
• What is your average annual expense?
• What is your intent for investing this money?
• When would you like to withdraw your money?
• Do you want the money to achieve substantial capital growth by the time you withdraw it or are you more interested in maintaining the principal value?
• What is the maximum decrease in the value of your portfolio that you would be comfortable with?
• What is your level of knowledge with investment products such as equity, fixed income, mutual funds, derivatives, etc.?

An individual or client would have his or 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 him or her. His 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 his capital against inflation.

In addition to an individual’s time horizon and risk profile, other factors that influence an individual’s investment decision includes: after-tax income earned; investment taxes such as capital gains tax and dividends tax; commissions and fees based on whether the portfolio will be actively or passively managed; portfolio liquidity, which determines the ease of converting securities to cash in case of emergency; total wealth, which includes assets not included in the portfolio such as Social Security benefits, expected inheritance, and pension value; etc.

An investment objective will typically not be completed by a client until he or she 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.

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 s/he is with investment products.