Question

With so many investment options available, explain what you see as the two main considerations in choosing the appropriate investment vehicle to help you achieve your financial goals and why.

Answer 1

Two main consideration for choosing the appropriate investment vehicle to help you achieve your financial goals would be-

1. Risk appetite of the investor as it will help him to take the required risk in order to maximize his overall portfolio return because investors should always be aware about his risk taking ability so that he can know when to get out of investments, when it is getting more risky then eventually thought. He should only be exposed to such asset classes which suits his overall risk appetite and he should not be investing into other asset classes just to maximize his rate of return but not matching with his risk taking capability.

Investor who is highly risk loving select stocks while investors which highly risk averse would select bonds and mutual funds.

2. Asset allocation and diversification of portfolio is also important while selection of investment vehicle because it will help in mitigation of the risk in order to maximize the overall portfolio.

Diversification is the most important tool of investment which is used to to eliminate the non systematic risk and which is used to hedge from various kinds of adverse economic events and survive and sustain through those adverse scenario so it is highly important for an investor to know his diversification strategy in order to invest into the market and choose appropriate investment vehicle.

Usually investor who is looking for diversify investment would select a mutual fund as his Investment vehicle.