Investor Constraints refers to the limitations or restrictions faced by investors in their trading endeavours. Incase you missed out, check out the various types of orders used in trading financial securities. Back to the day’s business, here are a few of those constraints;
- Resources. What is the minimum sum needed? What are the associated costs? Some investors want to invest in certain financial assets but the minimum investments amount set by the regulating bodies is just too high for the individual investor. Some brokers charge too high commissions per transaction lowering the possible profit margins and hence investors are cornered.
- Horizon. When do you need the money? This is basically in term of long term and short term. Some investors are investing for long-term gains while others such as day traders are mainly short term oriented. Some financial assets have fixed time horizons and therefore may lock out the short term investors.
- Liquidity. How high is the possibility that you need to sell the asset quickly? This becomes an issue if the investor wants to lay hands on his/her cash as soon as possible. Some financial assets are not liquid enough and may take time to be sold off. Some such as treasury bills have maturities and the investor has to wait tilll they mature.
- Taxes. Which tax bracket are you in? Taxes too can become a headache to the investor if they are too hicg and mandatory. They make the general cost of investing too high.
- Special circumstances. Does your company provide any incentive? What are your regulatory and legal restrictions?
Investor Strategies and Policies
- Investment management. Should you manage your investments yourself or leave it to your financial manager or broker.
- Market timing. Should you try to buy and sell in anticipation of the future direction of the market?
- Asset allocation. How should you distribute your investment funds across the different classes of assets? Remember, never put all your eggs in one bucket.
- Security selection. Within each class, which specific securities should you buy?