An investment is made because it serves some objective for an investor. And depending on a person's current age, stage or position in life, risk appetite of the investor and personal circumstances, there are three main objectives or factors that influence an investment decision. These are safety of capital, earning current income and capital appreciation or growth.
While every investor invests with a specific objective in mind, and each investment has its own unique set of benefits and risks, it is possible for an investor to have more than one of these objectives. However, it is worth noting that the success of one must come at the expense of others.

For example, a 75-year old widow living off of her retirement portfolio would be far more interested in preserving the value of her investments than a 30-year-old business executive would be. Because the widow needs income from her investments to survive, she cannot risk losing her investment. The young executive, on the other hand, has time on his or her side. As investment income is not currently paying the bills, the executive can afford to be more aggressive in his or her investing strategies.

An investor's financial position will also affect his or her objectives. A multi-millionaire is obviously going to have much different goals than a newly married couple just starting out. For example, the millionaire, in an effort to increase his profit for the year, might have no problem putting down $ 100,000 in a speculative real estate investment. To him, the said amount is only a small percentage of his overall worth. The newly married couple however, may be concentrating on saving up for a down payment on a house and cannot afford to risk losing their money in a speculative venture. Regardless of the potential returns of a risky investment, speculation is just not appropriate for the young couple.

As a general rule of investing, the shorter your investing time horizon, the more conservative you should be and longer your investing time horizon, the more aggressive you should be. For instance, if you are investing primarily for retirement and you are still in your 20s, you still have plenty of time to make up for any losses you might incur along the way. At the same time, if you start when you are young, you don't have to put huge chunks of your pay cheque away every month because you have the power of compounding on your side.

On the other hand, if you are about to retire, it is very important that you either safeguard or increase the money you have accumulated. Because you will soon need to be accessing your investments, you don't want to expose all of your money to volatility - you don't want to risk losing your investment money in a market slump right before you need to start accessing your assets.

In this article therefore, we want to examine these three types of objectives, and the investment products that are used to achieve them and the ways in which investors can incorporate them in devising an investment strategy.


While no investment option is completely safe, there are products that are preferred by investors who are risk averse. Some individuals invest with an objective of keeping their money safe, irrespective of the rate of return they receive on their capital. Such near-safe products include fixed deposits, savings accounts, government bonds, etc.

We can get close to ultimate safety for our investment funds through the purchase of government-issued securities in stable economic systems, or through the purchase of the highest quality corporate bonds issued by the economy's top companies. Such securities are arguably the best means of preserving principal while receiving a specified rate of return.

The safest investments however, are usually found in the money market, which includes such securities as Treasury bills (T-bills), certificates of deposit (CD), commercial paper or bankers' acceptance slips, or in the fixed income (bond) market in the form of municipal and other government bonds, and in corporate bonds. The securities listed above are ordered according to the typical spectrum of increasing risk and, in turn, increasing potential yield. To compensate for their higher risk, corporate bonds return a greater yield than T-bills.

It is important to realize that there is an enormous range of relative risk within the bond market. At one end are government and high-grade corporate bonds, which are considered some of the safest investments around; at the other end are junk bonds, which have a lower investment grade and may have more risk than some of the more speculative stocks. In other words, it's incorrect to think that corporate bonds are always safe, but most instruments from the money market can be considered very safe.


While safety is an important objective for many investors, a majority of them invest to receive capital gains, which means that they want the invested amount to grow. There are several options in the market that offer this benefit. These include stocks, mutual funds, gold, property, commodities, etc. It is important to note that capital gains attract taxes, the percentage of which varies according to the number of years of investment.
Capital gains are entirely different from yield in that they are only realized when the security is sold for a price that is higher than the price at which it was originally purchased. Selling at a lower price is referred to as a capital loss. Therefore, investors seeking capital gains are likely not those who need a fixed, ongoing source of investment returns from their portfolio, but rather those who seek the possibility of longer-term growth.

Growth of capital is most closely associated with the purchase of common stock, particularly growth securities, which offer low yields but considerable opportunity for increase in value. For this reason, common stock generally ranks among the most speculative of investments as their return depends on what will happen in an unpredictable future. Blue-chip stocks (Stock of a large, well-established and financially sound company that has operated for many years), by contrast, can potentially offer the best of all worlds by possessing reasonable safety, modest income and potential for growth in capital generated by long-term increases in corporate revenues and earnings as the company matures. Yet rarely is any common stock able to provide the near-absolute safety and income-generation of government bonds.

It is also important to note that capital gains offer potential tax advantages by virtue of their lower tax rate in most jurisdictions. Funds that are garnered through common stock offerings, for example, are often geared toward the growth plans of small companies, a process that is extremely important for the growth of the overall economy. In order to encourage investments in these areas, governments choose to tax capital gains at a lower rate than income. Such systems serve to encourage entrepreneurship and the founding of new businesses that help the economy grow.


Some individuals invest with the objective of generating a second source of income. Consequently, they invest in products that offer returns regularly like bank fixed deposits, corporate and government bonds, etc.

The safest investments are also the ones that are likely to have the lowest rate of income return or yield. Investors must inevitably sacrifice a degree of safety if they want to increase their yields. This is the inverse relationship between safety and yield: as yield increases, safety generally goes down and vice versa.
In order to increase their rate of investment return and take on risk above that of money market instruments or government bonds, investors may choose to purchase corporate bonds or preferred shares with lower investment ratings. Investment grade bonds rated at A or AA are slightly riskier than AAA bonds, but presumably also offer a higher income return than AAA bonds. Similarly, BBB rated bonds can be thought to carry medium risk but offer less potential income than junk bonds, which offer the highest potential bond yields available but at the highest possible risk. Junk bonds are the most likely to default.

Most investors, even the most conservative-minded ones, want some level of income generation in their portfolios, even if it is just to keep up with the economy's rate of inflation. But maximizing income return can be an irresistibly strong principle for a portfolio, especially for individuals who require a fixed sum from their portfolio every month. A retired person who requires a certain amount of money every month is well served by holding reasonably safe assets that provide funds over and above other income-generating assets, such as pension plans, for example.

Author's Bio: 

John Kennedy Akotia was born in a small mountainous village in Ghana, West Africa on the 2nd of April 1968. He grew up among seven siblings in not too good a financial background, but survived all the odds of life.
He is a Senior Minister of Fountain Gate Chapel - a thriving, people oriented church - based in Bolgatanga, Ghana. He is a motivational teacher, author, personal development coach, and personal finance and investment adviser. He speaks regularly at seminars and training programs. He has a strong passion for People Development and Empowerment both for kingdom and secular- business and leadership exploits. He is a mentor and a source of inspiration to many young people. He holds a Master of Philosophy Degree in Finance from the University of Ghana Business School. He is a very sought after teacher and conference speaker. His first book "Exploits of Wisdom" is widely read and still remains a sought after book.