Friday 18 December 2009

How do professionals invest?

How do professionals invest?
Mon Nov 9, 2009 12:33pm


Ask any professional and they will tell you that they never make an investing decision without the discipline of following a framework.

Here we suggest some criteria that all investors must use when making an investment, to help you avoid getting into investments you don’t understand or losing money in the long run.

- Risk taking capacity: Suitability of the investment for your unique situation

- Financial goals: What do you need to generate returns for

- Time horizon: By when do you want to exit the investment

- Liquidity: How quickly you want to convert your investment into ready cash

- Capital growth or regular income: Whether it provides you adequate protection against inflation

- Taxability: What kind of tax liability do you create

Professionals recognize that not all investments are suited for them. Just like not all medicines are suited to all patients, you must also realize that not all investments are suitable for you.

A common question that newcomers ask is “tell me the best investment for my money” and immediately expect a one sentence answer. It’s like a patient asking the doctor for the best medicine.

Before the doctor prescribes a medicine or the relevant dosage a thorough investigation of the symptoms, allergies and pre-existing condition has to be conducted.

You wouldn’t feel confident with a doctor who blindly prescribes medication to you.

It is similar when it comes to investing. You need to do a through analysis of your unique situation before you or any advisor can choose the “best investment”.

Its for this reason that an investment made by those around you might not be the right investment for you, because you might be at a different stage of your life, with a different risk profile and financial assets and liabilities.

http://in.reuters.com/article/personalFinance/idINIndia-43714520091109?sp=true

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