2.1. Investment Objectives

While the ultimate goal of every investor is to reap a return on investment, or at least not to suffer a loss, not every investor has the same investment objective. A specific investor’s objectives may be driven by personal circumstances, risk tolerance, time horizon, and tax considerations. The following are common, and in some cases mutually exclusive, investment objectives.

Growth. Growth investors, as the term suggests, seek to invest in companies with high rates of earnings growth. Because the market anticipates fast growth, growth stocks tend to have high price/earnings ratios, which the future performance of the stock may or may not ultimately justify. If earnings growth does not meet expectations, share prices eventually fall, sometimes precipitously. Thus, while growth stocks offer the opportunity for significant capital gains, they have a corresponding risk of producing less welcome capital losses.

Growth investors are after big capital gains, not income, and growth stocks do not usually pay dividends. Instead, available capital is plowed back into the business to help stimulate more growth.

Aggressive growth. Aggressive growth investors seek the highest possible rates of return, and are willing to live with substantial risk. Where growth stocks may have high price/earnings ratios, aggressive growth stocks may not have a P/E ratio. This is because they have no earnings, at least not yet.

Capital appreciation. While many of us may wish to show our gratitude for what capital does, this strategy’s name uses “appreciation” to mean “increase in value.” Investors with a capital appreciation strategy seek long-term growth of their investment. They are not necessarily “growth” investors per se, but are looking to build the value of their investment over time. Money placed into a 401(k) or other retirement plan is often invested with capital appreciation as the objective.

Value. Value investors search