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The Three Investment Goals

January 26, 2010

The main goal of investments is to earn. There are three routes an investor can go through to achieve this. These routes are different from one another so that each goal can be achieved only when one goal is sacrificed or at least has to be minimized to make way for the preferred route. In the end, mixing these goals has become the target of most investors in order to have the best of both worlds.

Safe Investment

There are investors who would prefer to invest in safe stocks. There are high quality stocks and low risk bonds which investors can obtain in order to achieve profitability without risk. This is the main advantage of a safe investment. It can assure the investors of a yield after a determined amount of time. The investor will be required to be patient as the yield will surely come but only in small amounts.

The disadvantage of safe investment is in its yield. High quality stocks provide the safety needed by the investors but it does not provide the yield sought after by some investors. Inflation should also be considered since some yield could be easily covered by inflation. In the end, the investor may not gain anything since the increase will cover only inflation.

Income Intensive Investment

On the other hand investors can focus their investment on stocks that provide the highest yield possible. There are preferred shares considered by investors because of their high risk yet high yielding character. There are investment bonds that were graded A which means they could provide the highest profit with an almost the same amount of risk.

The advantage is clearly on the high yield but the main disadvantage of income intensive investment is risk factor. Most of the high yielding stocks are very risky in the sense that they could be the highest gainers on the first day but could be the biggest losers the next day. Forecasting could only deal with some factors but there are a lot of hidden and often volatile factors that could affect investment.

That is why investors are asked to mix these two types of investments. Safe investment is recommended but they do not provide the right yield expected by an investor but they need security for their finances above everything else. But they also need to have a profit and the only way to do is to invest in high risk bonds.

Capital Growth

There is of course, traditional stocks wherein investors purchase a number of stocks and let it stay there for a very long time. The yield may not be there after a few days or months but it will significantly grow after years of letting it improve.

This of course depends on the company’s ability to grow which will also reflect on their stock prices as confidence on the company progress. This is often preferred by investors who wanted to have gains in the long term level. There are certain risks in this type of investment but forecasting is easier since it is based on the company’s performance.

The advantage of this type of investment is not only on the long term gains but also in possible tax cuts. Compared to other type of investments, capital growth investment enjoys the lowest tax rate. There are even special tax cuts for investors who have opted to purchase stocks from smaller companies so that they could be assisted in their growth.

These are the common goals for investors. Each investor has a different personality and perspective so their strategy in financial advancement is different. In your end, you should also consider what type of investment you should prioritize based on your need.

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