Question

What factors should be consider when advising a client to invest in stocks, bonds, real estate, or some other financial instrument.

Answer 1

The factors that need to be considered when advising a client for any financial instrument are related to investor profile such as:

Return requirement: The return that investor needs for investment in his portfolio needs to be considered. An investor who need less return shall have his portfolio invetsed more in bonds than stock or real estate.

Risk profile: This includer an investors ability and willingness to take risk. It shall be seen in context of overall portfolio. For a investor who can tolerate and is willing to have more risk, equities shall have a large chunk of portfolio.

Liquidity requirement: As per liquidity requirement of investors, it should be taken into account not to invest a major portion in non liquid investment such as real estate or non-liquid flong term fixed deposits.

Cash flow requirement: Both short and long term cash flow needs shall be assessed and any major cash flow reuirement such as college education for children or buying a new car shall be accounted for by the investment. Such investment shall be chosen which are liquid and shall be made sucha s to provide cash flow with the cash flow requirement