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SETTING THE INVESTMENT OBJECTIVE

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The first step for the investor is to set the investment objective. Which would vary for individuals, pension and mutual funds, banks, financial institutions, insurance companies, etc.

For instance the objective for a pension or mutual fund or insurance company maybe to have a cash flow specification to satisfy liabilities at different dates in the future. These liabilities would include redemption, dividends or claim settlement payouts.

For a bank it maybe to lock in a minimum interest spread over their cost of funds.

For the individual investor the objective maybe to maximize return on investment. A more appropriate word would be ‘optimize’. As the individual would achieve optimum return at optimum risk. To maximize return would imply the maximization of risk, which would not be practical or sustainable.

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