Investment Objective: Speculation Objective
goal of outsized investment return in exchange for taking on much higher risk (highest risk)
Investment Objective: Growth
goal of long-term portfolio appreciation with less focus on generating current cash (second highest risk)
Investment Objective: Current Income
goal of generating current cash for the investor with less focus on growth and long-term appreciation (third highest risk)
Investment Objective: Tax-free income
goal of generation tax-free income by investing in municipal bonds
Investment Objective: Liquidity objective
goal of immediate access to funds and cash in order to meet a short-term goal (second least risk)
Investment Objective: Preservation of Capital
goal of zero decline in the value of the investment or portfolio
Asset Allocation
mixing investments across asset classes – stocks, bonds, cash – in order to reduce risk
Stocks: Risk/Return
higher return: higher risk, more volatile, long-term investment horizon
- Risk: market risk
Bonds: Risk/Return
moderate risk, wide range of types of bonds
- Risk: interest rate risk, call risk, credit risk
Cash and Cash Equivalents: Risk/Return
lowest risk; lowest return, inflation can reduce real return
- Risk: Inflation risk
Diversification
mixing investments in different sectors within a portfolio so that the positive performance of some investments neutralize the negative performance of others
Suitability Requirements
- FINRA rules require all investment recommendations be suitable
- Suitability is based on the customer’s investment profile ( Customer’s age, investment objectives, liquidity needs, risk tolerance, etc… )
- Recommendations to retail customer’s must be in their best interest
Total Return
measures all income (dividends and interest) and capital gains (losses) over a time period
