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¶ … volatile economic market, it is essential that an astute financial manger address the psychological as well as the financial concerns of a client. The article on "Investor Portfolios" acknowledges the psychological difficulties many clients have with focusing on holistic fund performance, rather than upon the performance of individual stocks. Despite the acknowledged benefits of creating a diversified portfolio to maximize portfolio return and mitigate potential investor risks, financial advisors must take the client's risk tolerance into consideration when providing guidance. Of course, it can also be quite frustrating for experts to deal with risk-averse behavior, as investors are quite inconsistent about the types of risks they feel comfortable making.
One possible suggestion for such wary investors is to limit their number of investments. This limits the number of individual funds or stocks about which the investor is concerned. The caveat must be made that to compensate for the lack of diversity, mutual funds rather than individual securities are the better option, since holding only a few stocks or even bonds could be a recipe for financial disaster, if one segment of the market experiences a financial downturn (especially in today's global economy, usually 'it is an ill wind that blows nobody good,' as some industries may actually do better during a recession). Ideally, mutual funds should represent variety of market sectors throughout the world, to cushion the investor against regional recessions.
Another psychological buffer for the cautious investor is to think of categories of investments, rather than investments in a holistic manner, such as fail-safe investments, long-term growth or retirement money (invested in stocks), and higher risk investments.
This balance will shift with the investor's age, financial profile, and willingness to tolerate uncertainty and speculation. Also, investors may want to consider holding some index funds along with more actively managed mutual funds so as to not miss out on any general market booms, although this does have the downside in that the investor will also experience every market 'bust.'
Excess Stock Returns The author of this report has been charged with doing a brief literature review and then answering two basic questions. The first question is whether the empirical evidence available leads to a predictability of stock returns using technical analysis. The second question asks the author to critically evaluate whether return predictability is a good indicator and test of market efficiency. While some people can get rich in the
Economic Trends In terms of output and growth, Canada's real GDP was 2.96% higher than it was a year ago, but the growth trend is slowing down from a growth rate high of 3.81% in Q3 2010. Japan's economy has contracted in Q2 2011 by 0.76%. It's rate has been volatile, growing rapidly over the past year only to contract again. The UK's growth rate is 1.63%, and that country has
Economics Government regulations may have played a role in the creation of the crisis, but there were many causes of the crisis and indeed many different negative outcomes. The credit crisis in particular occurred when the financial system began to collapse under the weight of bad assets that had been purchased under the assumption that they were AAA quality. This calls to account three areas where added regulation could have at
Economic indicators are used to measure the financial health of the economy. There are many methods and tools for measuring the economy and every economist has his favorite method. The health of the economy is measured by tracking certain indicators. Different economists use these indicators in various combinations. Some economists place more or less weight on different ones in making their predictions about which direction the economy will go. It
Market efficiency is the concept that markets have synthesized all available knowledge into the prices. Thus, the prices reflect that knowledge. By extension of this, there is little that an investor can do to "beat" the market -- that is to outperform market returns on a risk-adjusted basis. The theory of market efficiency is best encapsulated in the Efficient Market Hypothesis. This paper will explain market efficiency in detail and
The Canadian government seeks to have a positive balance of payments with the United States. This is, in effect, a wealth transfer. Tracking the balance of payments vs. The exchange rate, we can see the impact of exchange rate shifts on the BOP. The Canadian balance of payments in 2004, when the exchange rate ranged from 1.17 to 1.37, was $29.8 billion. In 2008, when the exchange rate was between