FORMULATING THE PORTFOLIO OBJECTIVES:
The portfolio objectives can b determined by ascertaining the constraints on a portfolio. The greater the number of constraints and the more bindings these constraints, the more conservative the portfolio must be.
The following are the six possible portfolio constraints which are evaluated to determine the appropriate objectives:
- Need for current income to meet the living expenses.
- Need for constant income to face inflation.
- Need for safety principal to liquidate the investments on a short notice
- Need for safety principal to reduce the effect of purchasing power.
- Need for tax exemption.