Financial Planning

Identify Financial Constraints

Financial constraints are the factors that may affect the implementation and performance of a financial plan. Some of the constraints, like an investor's preference on a particular mutual fund, may be minor. Some of the constraints, such as an investor's risk positioning, may impact the total return of the portfolio.

Financial Constraints

Risk profile - the risk investor willing to assume for an investment. If it is risk-tolerant, risk-averse or in between?
Investment time horizon - the period to time to build a financial portfolio. The longer the investment horizon, the higher the potential return.
Investment knowledge - the level of investment knowledge, investor's level of acceptance for complicated financial plan, such as derivatives
Taxation - the marginal tax rate of investor, may directly impact the choice of investment products on generation of fixed income or capital gains.
Legal requirement - an investor may bind by the rules on RRSP, Taxation law etc.
Moral and ethical consideration - some investors would like to avoid investment in tobacco companies.
Other unique requirements - some investors would like to invest in art or jewellery.

Financial constraints dictate the discipline of a financial plan. These are some of the important points to consider when drafting your financial plan.

Identify Financial Constraints

Financial Constraints