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This is perhaps the most common factor we have come across. lf you are risk-averse,
you are not likely to employ aggressive trading. It is critical for you to assess
the amount of risk you can tolerate. Age is a factor that determines the degree of
risk that an investor can take. Young and mobile people are generally able to tolerate
more risks.
A conservative approach looks for income gains while aggressive trading seeks capital
appreciation. In short, your desire for either income or capital gains determines
how you want your money to be managed.
Is it always safe and preferable to have a conservative financial obiective? Being
conservative does not always deliver good and secure returns at the end of the day.
History suggests there are cases where conservative instruments fail to provide the
"expected steady" returns to the investors. Always strike a balance on
your investments to achieve "optimum" results.
If you are extremely conservative and have all your money sit on a fixed deposit,
you are likely to lose more over the years given the impact of inflation which reduces
ones purchasing power. It is alright to take some level of risks and an investment
advisor can help you to manage your risks effectively.
Before you decide on your investment objective, you must carefully assess your situation
to determine tbe needs for liquidity. If you are investing to support your house
mortgage every month, you will need a steady stream of cash. Therefore you will favour
investments that offer high liquidity such as stocks. In this case, you are unlikely
to take a very conservative approach - putting all your money into the fixed deposits
or properties.
It is generally more difficult to sell a piece of land than your shares. Nevertheless,
you will find it more difficult to liquidate either of the investments if they were
both bad apples.
Whatever investments you make will be affected by the tax structure of the country.
Over in the more established markets where the tax structures may be complicated,
investment advisors play an important role in advising their clients on tax-related
issues.
Would you lilte to follow a do-it-yourself approach or employ an investment advisor
to help you? If your investment objective is to plan to invest in the stockmarket
to generate short-term income, you have to allocate more time on your investment
that is you have to reduce your leisure time activity - playing golf, tennis, etc.
If you are investing for long-term (purely fundamental-driven), you can afford to
have a more relaxed lifestyle.
Some investors find it more stimulating and satisfying to handle their investments.
But are their returns satisfying enough? If you are a lawyer or doctor, what is the
probability that you will generate better investment returns than an investment professional
who is constantly in touch with the financial markets? Statistics suggest that investment
professionals are able to deliver better results over a specific period.
In short, consider the trade-off between managing your money and leisure carefully
before seeing your investment objective. In making investment decisions, know what
your opportunity cost is.
You must assess your risk profile before setting your investment objective. To conclude,
it is not impossible for Mr. Wong or you to achieve your financial dreams. What matters
is a little discipline, foresight and not forgetting a bit of luck.
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