Question

Different investors will have very different investment objectives and strategies. For example, some will be very active, buying and selling frequently; others will be relatively inactive, buying and holding for long periods of time. Some will be willing to bear substantial risk in seeking out returns; for others, safety is a primary concern. The investment policy statement, or IPS, is typically divided into two sections: objectives and constraints. Suppose you have RM 50,000 cash now, you want to make investment in United Kingdom stock markets, but you need pay the Oxford tuition in July 2021 based on this investment.   Now please discuss your own investment policy statement: (1) What is your own investment objectives in terms of risk and returns; (2) Discuss at least three of the most common and important constraints you might have to consider for this investment

Answer 1

1. My investment objective in terms of risk and return is to minimise my risk in order to maximize my return because I have to pay a certain sum of money after a certain period of time, so I will have to have allocation into fixed deposits payments which will be providing me with adequate rate of return in order to pay the tuition fees and I will also have to protect my capital to a large extent so I will be trying to minimise my risk and have an allocation towards the bond portfolio because Bond portfolio will be helping me in order to reduce the risk associated with the investment and it will also provide me with a fixed rate of return and it will also provide me with full repayment of principal at the maturity.

I will be focusing upon the concept of diversification among various asset classes in order to minimise my unsystematic risk and minimise my uncertainty in respect to a certain company so that I can be maximizing my overall rate of return in the longer period of time.

2. Three most common and important constraints I will have to consider-

A. I will have to consider the constant of fixed payment as I need the money after a certain period of time.

B. There is a time duration associated with overall investment

C. There is a need for not to invest into any kind of high beta stocks because it will expose us to high risk.