In: Finance
The Investment Management Process also considers an indivudal's "contraints"? What are these? Give an example of each.
The constraints of an individual are requirements or condition
of an individual that may or may not allow one to invest in
specific type of financial assets. Some of these are:
Ability and willingness to take risk. For example a young person
will have a high ability to take risk as opposed to an old person
becaus ehe has more life remaining to save. Also the same Young
individual may or may not be willing to take a high risk
Liquidity requirement. For example a person may have a high
payout coming let say mortgage closure. He/She shall need some cash
to overcome this expense.
Time horizon constraint: A person may have a long term horizon and
this shall increase the ability to take risk, a lower horizon shall
decrease the same
Tax constraints: A person shall not invest in securities being
taxed and may prefer tax free securities such as treasury
Unique constraint. An investor may not be willing to invest in
tobacco or alchohal companies