Capital preservation
Capital preservation means that investors want to minimize their risk of loss, usually in real terms. They seek to maintain the purchasing power of their investment. In other words, the return needs to be not less than the rate of inflation. Generally, this is a strategy for strongly risk-adverse investors or for funds needed in the short-run, such as for next year’s college payment or a down payment on a house.
Capital Appreciation
Capital appreciation is an appropriate objective when the investors want the portfolio to grow in real terms over time to meet some future need. Under this strategy, growth mainly occurs through capital gains. This is an aggressive strategy for investors willing to take on risk to meet their objective. Generally, longer-term investors seeking to build a retirement or children college education fund may have this goal.
Current Income
When current income is the return objective, the investors want the portfolio to concentrate on generating income rather than capital gains. This strategy sometimes suits investors who want to supplement their earnings with income generated by their portfolio to meet their living expenses. Retirees may favor this objective for part of their portfolio to help generate spendable funds.
Total Return
The objective for the total return strategy is similar to that of capital appreciation; namely, the investors want the portfolio to grow over time to meet a future need. Whereas the capital appreciation strategy seek to do this primarily through capital gains, the total return strategy seeks to increase portfolio value by both capital gains and reinvesting current income. Because the total return strategy has both income and capital gains components , its risk exposures lies between that of the current income and capital appreciation strategies.
