Before you can begin to help clients meet their goals, you must have a good grasp of their current financial situation. It can be useful to create worksheets to capture the following information:
- Tax issues
"Financial goals" refers to general investment objectives, not the client's specific needs, such as retirement at a certain age or college plans for his/her children (see the next section on capital needs).
However, there is certainly a correlation between the two, and it is useful to know the characteristics of each of these investment goals:
- Preservation of capital - the investor is more concerned with safety than return. Treasury bills and money market funds may be most appropriate.
- Current income - the investor needs a portfolio that produces steady income for current living expenses. Bonds, annuities and stocks with high dividends (such as utility stocks) may be appropriate.
- Growth and income - the investor is looking for a portfolio that generates some amount of income, but he/she is looking for capital appreciation as well (often for protection against inflation). Appropriate investments could include a mix of bonds and stocks.
- Growth - the investor's goal is likely retirement or another event in the future, where current income is not needed. A diversified stock or mutual fund portfolio is appropriate.
- Speculation - the investor is looking for high-risk investments with a potential for very large returns. This is rarely the goal for an entire portfolio, but rather for a specific portion of assets. Aggressive growth funds and small-cap issues may be most appropriate.
Exam Tips and Tricks
Consider this sample exam question:
- Each of the mutual funds below might be suitable for an investor primarily seeking income investments EXCEPT:
- Government bond fund
- Balanced fund
- Sector fund
- Money market fund
The correct answer is "c", since sector funds contain only stock investments and are primarily growth-oriented.
Capital and Current Investments
ETFs & Mutual FundsDiscover the various categories of income funds and the types of investors for whom they are appropriate.
Financial AdvisorFind out what factors determine whether mutual funds are right for your client, including risk tolerance, investment goals and tax implications.
ETFs & Mutual FundsLearn about the different types of mutual funds and how to know if your financial advisor is choosing the right funds for you based on your investment goals.
RetirementIf you're near retirement or already there, it's time to change your investment goals from growing assets to using them to generate income. Here's how.
Managing WealthTime-horizon investing is all about planning. You need to think about your goals and select investments based on the amount of time you have until the goal must be funded.
ETFs & Mutual FundsDiscover five mutual funds from industry leader American Funds with high yields that are perfect for retirement savings diversification.
RetirementFind out why you should include balanced funds in your portfolio, including the importance of customizability, diversification and professional management.
ETFs & Mutual FundsLearn about the important factors to consider when looking for mutual funds that pay high dividends, including how they may impact your taxes.
InvestingMore than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
Personal FinanceFind out how much to invest each year if your annual income is $50,000. The key is knowing the final benchmark for your retirement goal.