High Definition Imaging in Finance
Investment planning is an ideal endeavor that assumes some variables where the real outcome of the investing may be different.
Whenever we see the letters HDI, we kind of know what it means especially when it’s a description of a device, like a TV or monitor. High definition imaging (HDI) sends out clearer images to the viewer. It intends to gratify the viewing experience of the user. It is the present trend in technology.
Similar to finance, investments in particular, HDI can mean high-definition investing. A clear definition of an investment endeavor is quite a necessity these days. It provides a clear picture to the investor on how to carry out the investment decisions. Moreover, it helps the investor bring back guidance and sense to the investments made at times when risks surface or when things get hazy or crazy.
High-definition investing is all about crafting an investment objective. Before one embarks on investing, the objective must be set. It is usually interchanged with profit objectives when deploying an investment. It should serve as an overall guide to the investment plan one would undertake.
An investment objective is a statement that represents the holistic characteristic of the investor and the investment. It is a reflection of the investor’s personality which will serve as a basis to determine the investment portfolio, which investment instruments to engage and what sort of direction to take.
The usual simple investment objective starts with a profile of the investor with regard to the manner of investing. Typical of which is the profile of either, being conservative, moderate or being aggressive. The purpose of investing is likewise helpful. It is somewhat a vision statement of the investment plan. Some investors may have specific preferences and purpose of the investment. These may be included in that statement.
After the objective is written or determined, a policy statement comes next. It provides specifics of the investment objective. If the objective is the vision, the investment policy is the mission statement. It sets the investment universe in conjunction with the objectives set. It should contain greater specifics of the investment to be undertaken. An example is when the objective allows an exposure in stocks, it spells out the kind of stocks the portfolio should contain. Will it be blue chips, mid-size stocks or speculative issues? Is the investor considering growth versus value stocks? Similarly, for bonds, more specifics can be determined as to who is the issuer, is it government issued or corporate? If corporate issued, does the investor consider credit ratings or security of the bond? How about if it is a mix of the two? How much is allocated in one class against the other?
On the returns or yields, how much is being targeted? We call this the hurdle rate. It is easy to decide how to handle returns and yields. While parameters are set on the profit side, it is imperative the risk side should be handled quite similarly. The plan should state how one will handle the risk when it presents itself. What sort of techniques available for the investor or has it been addressed in the course of selecting the investment instruments? The time horizon is, likewise, an integral part of the investment policy, especially to the bond section of the portfolio. The tenor and duration of bonds are areas of interests. For stocks, it would be the time how long a stock is going to be held in the portfolio before any adjustments can be made. On the other hand, this can be a dictate of profit or loss objective.
Prospectively, investment planning is an ideal endeavor that assumes some variables where the real outcome of the investing may be different. Hence, portfolio evaluation and rebalancing will have to be part of the plan. Individuals do the evaluation usually on an annual basis but the more dynamic institutions, it can be in six months or every three months. The time interval will depend on the over-all complex of the plan. After doing the evaluation, a rebalancing or adjustment may be carried out either the portfolio is under achieving or exceeding its objectives. Likewise, external factors and market outlook are factors to consider in the adjustments. Investor situation at the time of evaluation is a factor, too.
An HDI is clearly helpful and essential. Without it, more risks may be added to the investment activities. A hasty and emotional decision is equally damaging. A well-informed decision that is properly guided and well set is integral to one’s investment success.
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Ricky So is a Registered Financial Planner of RFP Philippines. HE is a independent Financial Adviser of Rampver Strategic Advisors, and a Columnist of Business Mirror.
Source: http://www.businessmirror.com.ph/index.php/en/business/banking-finance/31222-hdi-in-finance
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