The concept of financial management: what factors need to be considered for a successful operation
The investment horizon is an important concept in financial management. With its help, the investor determines the period until which the set goals should be realized. This indicator depends on a number of other factors, but it should be taken into account when choosing a strategy of activity and financial instruments.
Before carrying out certain operations, an investor should determine a number of points:
– business objectives;
– risk tolerance;
– the amount of capital the investor is willing to risk;
– the period of time and amount of effort that will be spent on the funds management process.
Investors can set themselves a variety of goals, including stock trading, capital formation, and others. A clearly formulated goal should be the starting point, on which subsequent actions depend. That is why special attention should be paid to setting one’s goals.
The period of investment of funds and the amount of expected return have an impact on the level of risks. If the other factors are practically the same, the risk will be higher in the case where the period of investment is longer. It should be borne in mind that risks are reduced when an investor is willing to increase the time he will spend on capital management.
In order to expand the use of financial instruments, it is necessary to invest more money, besides, it allows hedging the risks. An investor should understand that for successful financial activity it is necessary to devote a lot of time to it, to understand the nuances and specifics of each approach. You can achieve the desired result only with effort.
Once the investment horizon has been determined, financial instruments of several types are selected. One of them is derivatives, which include futures, swaps and options, which are used for various assets – securities, currencies and others. This option is most often used by experienced investors who have sufficient capital and know how to manage risk.
To calculate the investment horizon correctly, one should also take into account the current market situation and factors that may affect its changes. Finding trends and monitoring their behavior will help in this.
To determine the investment horizon, factors such as payback period are often used. It characterizes the minimum amount of time that is needed for the investment to pay off. To calculate it, we use the value of the initial investment and divide its estimated amount of income.
The investment horizon is critical to obtaining the expected result, but simply setting a goal is not enough for success. You need to spend some time on the financial management process, research the issue, and choose the best tool.