Macroeconomic conditions and investment management decisions

¶ … investment management in the financial sector. The paper highlights the world's present macroeconomic situation. It further details the macro economic situation and the way it affects investment decisions in several investors. In addition, the paper describes a sample investment programme and provides critical decisions to investors as well as investment vehicles used by the investment moguls. The paper summarises practical exercises in compound investment management growth and the use of capital investment.

Investment management is an important part of the global financial sector, which is key in financing vast business empires. Investment management is incorporated under state laws employing several individuals and creating revenue to key players in the financial market. It is the management of several securities and assets to meet specific objectives for the benefit of the investors. The products used known as investment vehicles can be of minimal risks such as government bonds; carry high risks such as stocks trades and other equities as well as mutual funds. Investment management services include financial statements analysis, asset and stock selection and monitoring of investments.

Macroeconomic Situation in the World

The current world macro-economic growth started to slow down at the beginning of the 2008 and is approximated to have decreased by 2.8 per cent in 2012. This macro-economic deceleration is expected to continue until 2014. The world gross product is estimated to be 2.6 per cent in 2012 and 3.2 per cent in 2013, which is still below rate before the crisis. Currently, the macroeconomic condition of developing countries is estimated to go on growing averagely by 5.4 per cent in 2012 and 5.8 per cent in 2013. ( Development Policies and Anaysis Division, 2012).

Developing countries are experiencing minor slowdown in per capita income growth. It decelerates from 3.8 per cent in 2010 to 3.5 per cent in 2011 and, in spite of this, these countries may experience minimal income growth above this rate in 2012 and 2013. Liberalization of the foreign exchange market has also steadily taken place. In these countries, holding foreign currency is no longer an offense, but dealing in foreign currency can pose legal problems. In addition, private companies have no authority to retrieve foreign currency except when they source it from the export proceeding market. This has resulted in difficulties to companies that accommodate domestic market, particularly when the export proceedings market has a lower exchange rate exercisable for imports.

Issues relating to business and trade remain complicated and uncertain; this creates many determents, problems and creates incentives to continue through informal channels where possible. Nevertheless, the process of liberalization procedure has not proceeded at a steady pace. Private investment has been depending on the short-range inducements given by the investment law and not on long-term growth expectations based on a stable set of rules of the game.

Effect of Current Economic Situation on Investment

Financial operations take a long time to stimulate an economy in contrary to a fiscal stimulus because the investments heavily depend on private sector sentiments. The recommended initiative is to work out policies that would promote both growth recoveries in the short-term and sufficient debt reduction in the medium term. This would require a credible debt reduction plan that would take care of major budgetary areas and allow for some spending in the short-term. Without such combination of policies, a mix of growth reduction and debt reduction will not be sufficient to reduce the risk which may be encountered during investment.

Investment Programme and Objectives

According to Personal Finance (2012), the key financial planning in after other personal goals is the personal investment plan. This investment plan is important as it creates the framework for investment activities to be carried out. The important aspect of the financial programme is that it gives the guidelines for investment capital and acquires additional returns. The investment plan is the detailed description of the major component of the investment strategy. The investment program when properly implemented will affect the financial position of the investor and lead to great returns. The investment program elaborates personal investment needs such as financial constraints, risk tolerance and on ways the investment program relates to asset allocation and objectives of the investor. The objectives of the investment program is to provide investment framework an guidelines for making investment choices, achieve capital growths, increase incomes to the investor and minimize taxation in addition to safe money investments.

The investment management objectives give the required decisions to and frameworks to help the investor pick put the best decision that would affect future financial position of the investor. The objectives when strictly followed will avoid poor investment decisions that would lead to greater financial constraints to the investing person. The investment objectives are guided by incorporating the best strategy to ensure financial prosperity by the investor. The achievement of the under mentioned objectives comes with foregoing of other irresponsible and financially misleading investment plans and selecting the best financial program for the future. Incorporating a single investment objective and giving weightings to other objectives depends on factors such as the financial position of the investor. Giving priority to achievement of the objectives depends on studying and deciding on the opportunities that match your objectives.

Investment Management Instruments

Investment Management's primary objective is to secure reasonable returns to fund invested assets while avoiding potential risks associated with the investment. To ensure successful investment management, parameters such as investment quality and return rates are give considerations to minimise risk associated with investments. Successful investment management decisions are to be in compliance with stipulated county laws and regulations as well as investment policies. Investment instruments are necessary investment options which investors use to store in interest paying checking accounts. There are several investment instruments including saving account, stock investments, and hedge funds among others to ensure investment success for investors (Markowitz, 2009).

The first possible investment instruments such as bank savings accounts are the simplest investment instruments available for small scale investors. A savings account guarantees the account holder interest accruing after given timeframes usually calculated annual or after two to three years. The total accrued interest payments earned from the saving account depends on the offered interest rates of the banking agency and the total amount in the depositors account. These savings accounts give the depositors insurance in cases of financial constraints and breaches of banking rules.

The other investment instrument is private and public equities. Private equities including insurance companies, pension funds and endowments raise increased revenues of investors in the financial market. In his book, Swensen (2000), states that long-term equity management investments such as real estates and share equities should not be given first priority in the investment vehicles to reduce risks associate with big investments. The appreciation of real estate values takes a long time span and an earlier liquidation of the investments may result into great losses for the investors. Investment in common shares and real estate have no limited time frame which is possible to matched against funding to give the investor good earnings during the maturity of the investment period. These investment instruments are always fluctuating in value and require necessary accounting adjustments to the market value in accordance to the generally accepted accounting principles of the country.

The other inevitable investment vehicle is long-term debt instruments. The investment in excessive liquidity into long-term bonds maturing after more than three years and consist of government mutual funds is the best investment vehicle but with limitations. Corporate government bonds are risky to investors during phases of volatile interest rates. Such situations lead to liquidation of government bond portfolios often bringing significant trading losses to investors. To reduce such investment risks require the investor to put only a minimal portion of excess liquidity into long-term debt and puts strict parameters to guard against inappropriate investments decisions. These long-term investments depreciate in value and require accounting adjustments to the market value often leading to losses to the investing persons (Elton & Martin, 2010).

The subsequent investment instrument possible to use is investing in commercial papers and mutual funds. Mutual funds are investment strategies that are managed by professionals acquainted with money. Buying mutual funds attract slice of the fund though the investment decisions are made by the mutual fund manager and the investor has no say about the investing decisions. The fund manager invests the guarantor into several assets including stock bonds, as well as other investment funds. Mutual funds reduce risks faced by investing in single asset and have diverse portfolios. Investing in commercial papers and money mutual bonds may pose significant challenges to the investor. Portfolio investments in commercial papers and mutual bonds can be varying due to the fluctuation in their money values. The fluctuation of the commercial papers more than government securities require accounting adjustments to market values in accordance with accepted accounting principles

The final investment management is stock and hedge funds investments. Hedge funds are investment instrument for extremely rich individuals and are not available for all investors. Applications for hedge fund require qualifications under the stock exchange securities commission and the funds are managed by hedge mangers (N, 1980). Hedge funds allow investments in real estates, stock bonds and assets the manager seems viable for the investment. This fund attracts good returns and may be a good investment option. Investments in stocks are quite beneficial to the investors and the sale of investments attracts high or low returns for the investor depending on the stock market prices. Stock prices fluctuate with time and may be risky for the investor if no precautions are taken.

Life Annuity

The investment company offering single premium immediate annuity designed to secure income for retirees for the rest of their life. The annuity available from insurance companies is tax favoured and attracts minimal taxations leading to greater benefits for the retiree for the rest of their life. The annuity guarantees a steady income for the retirees until tier end life as well as being an assurance of financial security and independence after retirement. This annuity covers all possible investment risks leading to peace and no worries on market investment movements. This enables the individual access other insurance benefits with the tax free allowances for retires above the age of 65. In any subsequent year, the income tax department allows for annuity payments of more than $1,800 free per annum for individuals above the age of 65 who gave no steady income.

Investment decisions are calculated based on the annuals interest rates from monthly interest rates. The decision to invest lies in the interest rate variation and investment determination. Variation in interest rates leads to negative and low investments decisions for individuals. Investment has a relationship with interest rate variation and other factors such as economic stability o the individual and foreign exchange. The improvement and modification of these macroeconomic situations leads to improved investment rates. Variations in interest rates negate the highly lucrative and profitable investment management industry. Low interest rates impact investment decisions in both short- and long-term durations. Low interest rates coupled with low income rates distract individuals from engaging in investment decisions. Interest rates if not complimented in the investment decisions reduce monetary management and countries with high inflation having unstable investments programmes leading to low morale for investors.

Impacts of Inflation on Investment

Inflation is really problematic to almost all employees expecting their retirement benefits because the normal target keeps getting higher and higher to pay for the same quality of life. In other words, the savings will buy less (Contrarian Investor's Journal, 2008 ). As a result, there will be need to save more today to pay for higher priced goods and services in the future. Since everything bought today costs more, and so probably there will be less left-over income available to save. Inflation usually hurts the buying power. That's simply because increasing prices means paying more for the same goods and services.

However, if the income increases at a slower rate than general inflation, the buying power reduces even if you are making more. Furthermore, many people can get hurt by and if they try to time it, and buy right when the bubble is about to burst. In general, inflation's main consequence is a subtle reduction in the standard of living. Investors need to hunt for an investment fund which aims returns in excess of inflation over the long-term (Blume, 1978). In Swiss the Retirement Annuity range offers lots of options to help keep the investors and employees ahead of the game. Most of the long-term investors decide on Opportunity Fund to help them save for retirement. These are balanced funds, which invest in a spread of assets equities, bonds, property and cash ideal for investors who do not actively want to manage their own allocation of assets.