What is the typical risk objective for endowments?

The typical risk objective for endowments is focused on long-term objectives. Endowments are funds that are established with the intention of providing sustainable financial support over extended periods. This necessitates a strategy that emphasizes long-term growth while considering the need to preserve capital and generate income. The investment approach typically takes into account factors such as inflation, spending requirements, and the necessity to maintain the purchasing power of the fund over time.

Adopting a long-term perspective allows endowments to invest in a diversified portfolio that may include various asset classes, such as equities, fixed income, and alternative investments. This diversification can help to manage risk and potentially enhance returns over time, aligning with the endowment's goals of supporting the institution's mission well into the future.

The other options, while they may have some relevance in specific contexts, do not align with the fundamental investment philosophy of endowments. For instance, a focus on short-term security or high liquidity could lead to suboptimal returns due to the constraints imposed by such objectives. Similarly, maximizing annual income might jeopardize the endowment’s ability to achieve its long-term growth goals, as it may lead to a preference for investments that provide more immediate income but do not support capital appreciation.