Money Management Final-1 Assignment Example | Topics and Well Written Essays - 3000 words

Money instruction Final-1 - Assignment ExampleInvesting the entire sum of money in a single standard exposes the investor to the guess of that asset. So, in case when the price of that security falls in the market due to some(prenominal) reason, the investor will suffer huge losses. This, risk of concentration of money in a single note is mitigated through with(predicate) diversification. Risk Profile Analysis Investments are subject to market risks and a keen-sighted investor always picks to minimize risk over given coronation return of maximize return over given risk. The risk profile of a portfolio is determined on the basis of risk appetite of investor. If the investor is risk prone then much(prenominal) investor would prefer investing larger portion of portfolio in risky assets such as common stocks or growth EFTs where as an investor with a lower risk appetite would prefer investing in safer assets to ensure protection of principal investment. The logic or procedure to determine the inwardness to be invested in risky assets is determined on the basis of time prospect, objectives, and diversification. Objectives and Asset Mix The primary(prenominal) objective of the portfolio is to get adequate amount of long term growth in income. In dress to achieve this objective, substantial amount of the investment corpus should be invested into equity class ETFs and fewer portions should be invested in debt instruments. This is because, while the equity will ensure long term capital growth for the investor through proper diversification, debt portion of portfolio will ensure fixed and stable income for the investor. Proper diversification will serve reduce the overall portfolio risk by spreading stock specific risk into combination of securities. find Time Frame of Investment In order to evaluate the performance of the portfolio, sufficient time horizon should be elect since the objective of portfolio is long term capital growth and not speculative t rading. guardianship the objective of portfolio, a time horizon of minimum five years will be chosen to evaluate the performance of the securities. Money Management through ETF On the basis of the portfolio objectives, time frame of investment and risk profile analysis discussed earlier it kitty be said that Exchange Traded Funds (ETF) can be an effective money management tool. ETFs are investment funds that are often traded as commodity in the stock markets. Thus, ETF funds are traded similar to stocks in the stock exchanges but at the same time it is essential to know the appendage of buying and selling of ETFs in the stock exchanges. The process allows market players to determine ETF prices by analyzing the forces of demand and supply of ETFs in the market throughout the day. If appropriate dodge is not formulated then the investor might be adversely affected from price fluctuations throughout the day. advertize the investment objective will determine whether the portfolio wi ll be able to provide sufficient returns to the investors to chance upon such objectives