Investment And Money Management Essay

Length: 10 pages Sources: 1+ Subject: Economics Type: Essay Paper: #44940978 Related Topics: Investment Banking, Mutual Fund, Money, Biotechnology
Excerpt from Essay :

Investments are the assets or items purchased with the anticipation to generate the income in the future. In the economic sense, investments refer to the goods and services purchased and not consumed today for the purpose of generating wealth in the future. Similarly, going to a university or building a factory to produce goods and services are the examples of investments. Within a financial environment, investors purchase assets with the hope that they will appreciate in the future, thus, creating wealth for the investors. Examples of investment in the financial circle include purchasing of stocks, or real estate property with the anticipation that they will appreciate in the future. Despite the benefits that can be derived from the investment purpose, the investment is not something an individual can take lightly. Investors are to implement a careful planning to reap the benefits of an investment. Typically, an investor can lose his or her investment funds if diligent and careful planning is not implemented in the investment portfolios. (Costa, 2011).

The risks involved in the traditional investing portfolios are making increasing number of investors to divert their investment portfolio to the ETF (Exchange Traded Funds) investment to guide against the risks.

Objective of the paper is to analyze different type of financial instruments available for a moderate investor. The paper provides the individual analysis to determine the best investment option for a moderate investor that reflects EFTs and portfolio of fund.

Situation Analysis and Risk Profile of my Client

All investment with high and moderate returns carries high or moderate risks. Investment with no risks usually delivers low returns. In the financial world, investment portfolios such as stocks, bonds and commodities fluctuate in value and investors who cannot tolerate such fluctuations cannot invest in the tradition stock markets. Similar to the risks associated with stock and shares, putting money in the saving account also carries some risks. For example, an investors putting $10,000 in the saving account might lose part of his or her money if there is a fall in the value of the U.S. dollars some years after putting the money in the bank. Evaluation of the risk profiles of prospective investors is very critical before embarking on investment.

Our investor is a moderate investor who intends to invest in the investment portfolios that carry moderate risk and moderate returns. Costa, (2011) argues that no investment with low risk carries high returns. High returns investment will carry high risks. In other word, an investment carrying high risks will incur high possible losses. Similarly, investment carrying moderate risks will involve moderate loss. Investment earning low returns will incur low risks. However, the task of choosing best investment portfolios for my client requires analysis of his investment profiles.


A short interview will our prospective investor reveals that the investor is a moderate investor wishing to invest in the investment markets carrying moderate returns and moderate risks. Our client points out during the interview that he always invests in the moderate risk investments because of the old belief that history always repeats itself. People anticipating high returns for low risks investments end up losing their money. For example, many investors lost their money investing in the Madoff investment fund carrying low risks and high returns. Moreover, many companies collapsed in 2008 following the U.S. economic crisis. The major factors leading to the collapse was that several financial companies invested in the high-risk investment portfolios such as hedge funds making many financial institutions losing their funds and went bankrupt. Thus, the emotion of our client cannot support the high-risk investment portfolios. Nevertheless, our client still want earns value from his money; however, he is not interested in the low-risks investments that carry low returns. Thus, this paper suggests a moderate-return investment for our clients.




The type of investments that our client is considering are the investments that will assist him to live comfortably and allow him to leave some saving in his bank account.

Time Horizon

A moderate investor will like to invest for at least 3 years before deciding to reap his investment benefits. More important, moderate investors should be able to deal with his or her emotion that could arise from the investment fluctuation over the two-year period. Essentially, it is anticipated that there could be a fluctuation in the investment returns within a year of investment. Since our client is a potential moderate investor, he is ready to leave his investment portfolios for three years before looking for the investment returns. A short interview with our client reveals that he prefers the medium-term investments. Typically, many experienced investors recommend a medium-term of between 3 and 5-year-term.

Objectives: Our client's objective is to invest his fund in the investment portfolios that will assist him to enjoy a stream of income. The investment objective of my client reveals that it is critical to diversify his investment portfolios to reduce the investment volatility and risks. For example, our client's investment objectives require investing in different investment allocation such as shares, bonds, stocks and money market.

Justification of the ETFs

All investment in the contemporary investment environment carry risks and the investment risks can include the loss of capital. It is very critical to consider several variables such as risk factors, investment objectives as well as expenses before making an investment decision in order to eliminate the risk of investment loss. Moreover, it very critical to analyze all investment options of different investment products before making an investment decision. Investment diversification is one of the best strategies to investment, and this paper evaluates different financial instruments available for investment.

The ETFs are the index funds that allow the diversification of related investment portfolios. Typically, the ETFs are the basket of assets, index or a commodities traded similar to stocks on the stock exchanges. Similar to stocks and shares, the ETFs can also be subjected to price changes as they are bought and sold. Although, the ETFs are traded similar to stocks, however, the ETFs do not have the NAV (net asset value) calculated daily similar to the mutual funds. Owing that the ETFs allows investors to diversify their investment index funds and thus, they have ability to sell short.

The low expenses ratios are other benefits of the EFTs because the expenses to manage the ETFs are lower than the mutual funds expenses. The widely traded ETF is Spider (SPDR) traded under the symbol SPY with ability to track the S & P. 500 index. The ETFs are attractive to investors because of their tax efficiency, low costs as well as their features similar to the stocks.

However, the ETFs are similar to traditional mutual funds in many ways except that ETFs can be sold and bought thorough the day similar to the shares on a stock exchange and through a broker dealer. The difference between ETFS and traditional mutual fund lies on the investment strategy. One or more fund managers who decide on the best strategy to allocate assets can manage the traditional mutual fund, and the manager will manage funds, buy, and sell the assets based on the fundamental changes and market conditions. Despite the historic popularity of the mutual funds, Costa, (2011) argues that majority of the mutual funds have unperformed their investment benchmarks. Approximately 4.5% of the mutual funds underperform their benchmarks yearly, and only 8% of the active mutual funds outperformed their investment benchmarks. In Europe, approximately 2.4% active mutual funds underperform their benchmarks per annum and only 17% outperform their benchmarks. One of the major factors leading to the underperformances of some the active mutual funds is the high management costs, which affect the rate of returns. For example, the active mutual funds that charge 2% as the asset management fees will take 33.5% from the investor's profits. On the other hand, ETFs charging 2% management fees will only take 3.9% from an investor's profits. However, the mutual fund does not charge 2% from the profits; however, they charge 2% from the assets. If an investor is anticipating for the 8% of return a year, that means, 26.5% of the profits will go in expenses. On the other hand, EFT only charges 0.2% as expenses from an investor returns totaling 2.7% per year.

Availability is the other significant difference between the traditional mutual funds and ETFs. Typically, many traditional mutual funds do not accept foreigners. For example, the U.S. mutual funds do not accept non-U.S. clients. Contrarily, ETFs are traded similar to the stocks listed in the stock exchanges and anyone skilled in share trading can easily access ETFs shares. The popularity of ETF is due to its diversity, low cost, easy use and transparency. Choosing the ETF will assist in diversifying the investment portfolio that will deliver the best ROI (return on investment) for my client.

Nevertheless, reviewing individual stocks is still important to ensure that it…

Sources Used in Documents:


Costa, D. (2011). The Portable Private Banker Investing Efficiently through Mutual Funds and ETFs. UK. CreateSpace Independent Publishing Platform.

Morningstar (2014). Exchange Traded Funds, Morningstar website. Avaliable from:

Morningstar (2014). ProShares Ultra Nasdaq Biotechnology BIB, Morningstar website. Avaliable from:
Morningstar (2014). ProShares UltraPro S&P500 UPRO Morningstar website. Available from:

Cite this Document:

"Investment And Money Management" (2014, July 21) Retrieved May 28, 2022, from

"Investment And Money Management" 21 July 2014. Web.28 May. 2022. <>

"Investment And Money Management", 21 July 2014, Accessed.28 May. 2022,

Related Documents
Managing Your Money Olly Lloyd
Words: 1366 Length: 5 Pages Topic: Economics Paper #: 5660647

Still, since it is looking to sell a property asset that is not their main residence, they will be required to pay a capital gains tax, in the amount of 18 per cent (Direct Gov). For an estimated retail price of £150,150, and a tax rate of 18 per cent, Olly Lloyd would have to pay £27,027 in taxes. For the new employment contract, Lloyd would have to pay taxes

Management on Casinos
Words: 2783 Length: 10 Pages Topic: Recreation Paper #: 63533716

Management of Casinos The history of gambling in the United States consists of three periods, called waves. During these periods, laws and social standards vacillated from prohibition to regulation and vice-versa (Dunstan 1997). The first wave was during the colonial era from the 1600s to the middle of the 1800s when early colonists had a vastly different attitude towards gambling. These colonists were the Puritans and the English who established their individual

Management and Organizational Development
Words: 3677 Length: 14 Pages Topic: Children Paper #: 7245579

Management and Organizational Development CHAPTER V - SUMMARY RESULTS Fresno County Department of Children and Family Services emancipates twenty and thirty eighteen-year-old foster children each month. These children face many challenges as they work through a transition into the adult, working world. Children in a foster care setting have not had the stability needed for them to develop the life skills necessary to adjust to life on their own. Many of the

Management Has to Do With the Knowledge
Words: 3494 Length: 11 Pages Topic: Business - Management Paper #: 47868103

management has to do with the knowledge of the resources a company uses in running their daily affairs. It also involves effective projection of additional resources that could be needed along the way, and the maximization of the available resources. Maximizing the efficiency of the available resources and the ability to put some of them in reserve are part of Cost Management. Some scholars define cost management as the

Money Game by Charles Green 2011 Presidential
Words: 3219 Length: 10 Pages Topic: Economics Paper #: 25982238

Money Game by Charles Green (2011) Presidential candidate Herman Cain recently observed, "If you aren't rich, blame yourself!," a sentiment that is echoed time and again in Professor Green's authoritative text on personal money management, The Money Game. While it is reasonable to suggest that many if not most people will never become rich, it is also reasonable to suggest that given half a chance, consumers can overcome these obstacles

Money Game: Play to Win,
Words: 2514 Length: 7 Pages Topic: Economics Paper #: 46931314

He also recommends investing in a Roth IRA, rather than a traditional 401K, because the Roth accounts are safer and usually pay back higher dividends. He says, "Generally 401k and 403b accounts underperform IRA accounts because they offer less options and flexibility for investments and impose higher fees" (Green 101). He talks about how the stock market is not such a good investment anymore since it fell in 2008, and