Smart Investment An Analysis of Various Investment Objectives
Have you been hearing talks of investments from your colleagues or friends? Do they discuss the reasons why the wish to invest? Investment objectives refer to the different reasons due to which people invest their money. Let us consider the example of Prabhat, who is now 30 years old. He has been working in a petroleum corporation for the last 8 years and earns a handsome salary. When he was 25, he started his investment journey with a few investment objectives in mind. going through these instances, you will be able to better grasp the concept of investment objectives.
First of all, Prabhat was tired of travelling by public transport, especially since he was required to attend meetings with senior executives. Appearance made a huge difference in this scenario, and travelling by the bus caused him to look dishevelled when he reached his destination. Therefore, his first investment objective was to purchase a car over the next five years. This desire to buy a car falls under two different investment objective categories – to meet financial goals and to fulfil needs. After planning for this investment objective, Prabhat turned his attention to his own security. He knew that, even as he had a good insurance policy, he could not afford to be glib about potential emergencies. Therefore, he then allocated a fixed amount towards creating an emergency fund, which was his third investment objective. This fund helped him stay secure even when his company ended up docking two months’ salary during the COVID pandemic. His final investment objective was to create a nest egg for the future. Like many people of his generation, Prabhat knew that he did not wish to work till he was 60. He wished to retire at 50 and spend his later years travelling and volunteering to the causes he cared about. Since he was a part of the private sector, he would not have access to government pensions, making it imperative that he secure his future by saving up while he was employed.
From Prabhat’s example, you must have understood the four major types of investment objectives that prompt people to embark on an investing journey. Let us take a detailed look at these four investment objectives.
To meet financial goals
Each of us have some financial goals in mind, be it purchasing a car or investing in a house. It could also be to pursue higher education abroad. Any and all financial goals require optimal planning and investment if you are to realise it in a fixed period of time. Therefore, one of the most common investment objectives that people have is usually related to the need to meet specific financial goals, just like you observed when considering Prabhat’s example.
To create an emergency fund
Nowadays, most people live independently, without any financial support from their parents. In this scenario, you may require emergency funds for any number of unexpected situations – be it an accident, or a layoff at work. The pandemic has highlighted the need for an emergency fund, as we saw many people being laid off or requiring costly treatments to overcome the virus. Emergency funds are a must have for you, whether you are single or the member of a family, because emergencies never announce their arrival. As is frequently said, it is better to be safe than sorry. Facing financial duress in emergency situations can make the scenario infinitely worse so most people consider creating an emergency fund as one of their primary investment objectives.
To fulfil needs
As you move ahead in life and your career, you will find your needs increasing in line with your income and access to credit facilities. You may wish to live in a better apartment, in a more attractive locality and avail better amenities. Each of these needs cost money and, with the underlying inflation, the cost of even the most basic needs, like food, accommodation and clothing, are increasing significantly. Therefore, people may begin investing with the investment objective focused on fulfilling these needs in the course of time.
To create a nest egg for the future
While government employees have the provision of pensions post retirement, if you are in the private sector, you must create a nest egg to ensure a comfortable future. Old age comes with its specific set of health issues and needs, and having a nest egg means you need not depend on anyone to meet your requirements. Further, if you also wish to retire early and pursue your interests, like Prabhat, then creating a nest egg for the future should be among your primary investment objectives. Also, given the consistent rise in inflation, you must prepare for a very costly future ahead, so it is important to begin investing early on as this helps you benefit from the power of compounding.
There may be many other reasons why people choose to invest but, on a holistic level, each of those reasons will fall under one or more of the categories discussed above. Once you know your investment objectives, it is easier to plan and implement your investment strategies so start analysing your motives right away.
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