During the investment life cycle, individuals have a variety of financial goals. Near-term, high-priority goals are shorter-term financial objectives that individuals set to fund purchases that are personally important to them, such as accumulating funds to make a house down payment, buy a new car, or take a trip. Parents with teenage children may have a near-term, high- priority goal to accumulate funds to help pay college expenses. Because of the emotional importance of these goals and their short time horizon, high-risk investments are not usually considered suitable for achieving them.
Long-term, high-priority goals typically include some form of financial independence, such as the ability to retire at a certain age. Because of their long-term nature, higher-risk investments can be used to help meet these objectives.
Lower-priority goals are just that—it might be nice to meet these objectives, but it is not critical. Examples include the ability to purchase a new car every few years, redecorate the home with expensive furnishings, or take a long, luxurious vacation.
A well-developed policy statement considers these diverse goals over an investor’s lifetime. The following sections detail the process for constructing an investment policy, creating a port- folio that is consistent with the policy and the environment, managing the portfolio, and monitoring its performance relative to its goals and objectives over time.