Example Of Course Work On Role Of Investor Characteristics, Objectives, And Portfolio Objectives In Planning

Published: 2021-06-21 23:46:13
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Category: Finance, Planning, Investment, Taxes

Type of paper: Essay

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Investor characteristics that are of importance include family responsibilities and variables, state of income and income stability, investor’s experience and age, net worth of the investor and the investor’s attitude towards risk. Family responsibilities and the investor’s net worth limit the extent of risk that the investor will be able to handle. An unmarried investor may risk more than an investor that has a family to provide. Having a high and stable income will allow the investors to be involved in high dividend stocks or stocks with high appreciation value of capital. The level of risk expected will depend on the experience of the investor and the likely level of income he or she expects to get from the portfolio selected. Portfolio objectives such as capital preservation may choose investments with low risks while if the motive for investment is capital growth the investor may choose high-risk investments.

What are the techniques used to measure the amount invested, current income, capital gains, and total portfolio return relative to the amount of money actually invested in the portfolio? Which one would you prefer and why?

The technique used to measure the total portfolio return is the Capital Asset Pricing Model (CAPM). The CAPM provides a rough forecast of the expected future returns since it uses historical data. The ROI (return on investment) provides an estimate of the benefits derived from investing in a particular investment. The WACC (weighted average cost of capital) measures the cost of capital that an investment is likely to incur. Preferable technique to use is the CAPM as it allows the investor to prioritize which stocks to invest in with regards to the limited cash at hand.
Do you think that Statistical measures and uses like Sharpe’s, Treynor’s, and Jensen’s measures are effective to measure portfolio return? Which one would you like to use to measure your portfolio and why?

Statistical measures and the use of Treynor, Sharpe and Jensen measures are effective in measuring portfolio returns since they take into account the risks involved in the investments. Risk may affect the return on the portfolio differently. This will depend on whether the portfolio is diversified or undiversified. A diversified portfolio is recommended as it prevents the entire portfolio from suffering a loss. I would consider using the Sharpe measure since it takes a higher consideration of the risks of the diversified portfolio.

Discuss the importance of portfolio revision and the role of common types of formula plans in timing purchase and sale decisions. Are you applying it in your own portfolio project?

Portfolio revision is important since it allows the investor an additional opportunities to invest in the case of an additional source of cash. Additionally, a portfolio revision allows an investor to adjust the portfolio based on the risks and uncertainties in the financial market. A common formula plan used is the dollar-cost averaging plan. This plan is used for securities or investments that cover a huge portion of the market. Secondly, the constant-dollar plan uses a speculative and conservative portion of the investments. The speculative portion of the portfolio will have high-risk securities while the conservative portion will have low risk securities. Thus, in case the speculative portion increases, based on this plan, the profits will be used to increase the conservative portion. The constant-ratio plan is used on speculative investments. The variable-ratio plan uses a variable part of the risky investments for the safe investments. Thus, in case the market is performance is expected to rise the speculative portion is increased. These formula plans are being applied in my project.

Are you considering the use of limit and stop-loss orders in investment timing, the warehousing of liquidity, and the key factors in timing investment sales in order to achieve maximum benefits from your investment portfolio?

A limit and stop-loss order will be used to ensure that the profits earned are protected. Liquidity will ensure that new investments can be made without interfering with the current portfolio. The key factors in timing investment are the consistency with investment goals and tax penalty.

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