Sunday, October 25

Investment Constraints

There are various constraints that we come across while making investment decisions. Some of them are:

Liquidity constraints refer to the need of the investor to convert quickly into cash at a price that is closer to the fair market value of the investment. Usually, if an investor purchases a long term asset such as real estate, these are termed as illiquid assets as it usually takes longer to sell such assets and get cash. In case of immediate need for cash, one may have to sell such illiquid assets at an unfavourable price.
On the other hand, marketable securities such as Money Market Funds are termed as liquid assets which can be sold and converted into cash almost any time.

Investment Horizon:
Investment Horizon (also known as Time Horizon) refers to the planned time between making an investment and redeeming such investments. A person (e.g. at the age of 25) would usually have a longer investment horizon if he plans to investment for retirement, daughter's marriage etc.

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