Investment Goals and Strategies

Investment Landscape

• Investors and their financial goals, saving or investment, various asset classes, investment risks, risk measures, investment decision-making biases, risk profiling, asset allocation, and the choice between DIY and seeking professional help are all important topics.

Financial Goals

• Financial goals involve assigning amounts and timelines to financial objectives like funding education, retirement, or buying a house.
• Goal setting involves identifying life events, prioritizing them, and assigning timelines and funding amounts.
• Goals can be classified based on timeline (short-term vs. long-term) and importance utilizing a matrix similar to Stephen Covey’s Time Management Matrix.
• Inflation adjustment is crucial for long-term financial goals to account for the rising cost of goods and services.
• Unlike goal-based investing, the "pool approach" may not clearly define investment timelines.

Short Term vs Long Term

• Shalini’s higher education is roughly ten years away, whereas Rabindra may work for another fifteen years, making each a long term goal
• Surinder Singh may need to buy a house in the next couple of years and Mrs. D'Souza has a need for income from investments in the immediate term making each a short term goal

Evaluation of Investments

• Safety of capital is key to evaluate investments
• Liquidity is the measure of how easily investment can be converted to cash
• Returns are objective to getting money from investment like regular or periodic income, also known as current income; and capital appreciation, or capital gains.

Asset Classes

• Real estate, commodities, equities, and fixed income investments are four major asset classes with varying characteristics.
• Real estate involves high transaction and maintenance costs and is often illiquid,
• Commodities, like gold and silver, are globally accepted assets, though the level of purity and lack of current income can be drawbacks.
• Fixed income investments include bonds and debentures which pay regular interest income, and are generally considered safer than equity
• Equity represents ownership in a business and offers potential for capital appreciation and dividends, but has large short term fluctuations
• Equity and bonds are available only in financial form, whereas real estate and commodities can be held in physical or financial form.
• Equity and bonds prices can be greatly affected by risk

Investment Risks

• There are liquidity, market, price and credit risks regarding investments
• Inflation can erode the money's purchasing power, especially over long periods.
• Inflation is the rise in prices of various products, and services consumed.
• There are two types of risks to a security-market risk and price risk.
• There need to be an assessment of economic conditions to see if money will retain value