Portfolio Risk Management

Portfolio Risk Management

Portfolio Risk and Return –

Managing Portfolio in the Light of Returns and Constraints

The objectives associated with the returns are divided in to several different needs a few of which may include the following:

Capital Preservation

Preservations means to maintain a certain level, so capital preservation calls for maintaining a certain level of capital which complies with the rate of inflation at the minimum. Therefore, investor have the need to maintain his capital to the extent of at least inflation rate.

Capital Appreciation

After preservation comes appreciation, in this regard the terms of capital growth relate well, one need to focus on the factor of the growth of capital or else the purpose of the investment will tarnish there. One invests in such opportunities just for the growth and increment.

Current Income

Current income comprises being the term associated with the investors who are retired mostly, since they have no return from any work on a monthly basis the need to have an income from investment proves being essential. For instance they need this certain income in order to work with their daily living expenses.

Total Return

As the name suggests the total return calls being the entire return one may get through the appreciation of the capital and also by way of reinvesting that appreciation to have more growth.

Constraints in Investment

There are numerous constraints which must be considered when the policy state has been made; a few of them may include the following:

Liquidity Constraint

Liquidity is the need of cash, this constraints comprises of having sufficient cash for some or the other reason and may turn out to be a biggest barrier while having an investment opportunity.

Time Horizon

Time horizon acts as a major barrier when it comes to the investments. The investors who have an ability to cope with the risks at a higher level ate usually the ones who have time horizon with a longer span, whereas the ones with a short horizon have a lower level of ability to tackle risk.

Tax Constraints

Paying tax on the returns is also something that may give a real tough time to the investors. In this regard, the need to look into the level of taxation required is also a major concern to consider when it comes to managing a portfolio of investments.

Legal Implications

There are numerous regulatory matters as well which act as a barrier to investment. There may be certain limits placed by law to have a certain amount of income attained from a particular investment and in this regard many people consider this factor as important in their investment portfolio.

Unusual Circumstances

At times, many people end up investing in such companies that numerous risks may take place and at times they do form to be a barrier as well. In this regard, one may consider investing in a company not responsible on the social level as it is risky choice.

Significance of Allocating Assets

The major reason for the purpose of considering the allocation of asset as a major concern is the diversification of risk. People may consider differed options available for instance bonds, stocks, cash and much more so that the level of risk may get balanced. The allocation may vary from country to country and person to person depending on factors like personal and market oriented ones.

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