Do you think that investing in financial assets is just investing and it does not matter whether we are talking about bond portfolios or stock portfolios? What advice would you give to your clients?
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Bonds and stocks are very similar securities in many respects. For example, market value of both is determined by their expected future cash flows; and both show price sensitivity- some more, some less- to a set of common market factors. At the same time, some may even go further and state that when it comes to portfolio investing details, there is really no difference between the two either. What do you think? Do you think that investing in financial assets is just investing and it does not matter whether we are talking about bond portfolios or stock portfolios? What advice would you give to your clients?
Explain your position in 3 to 4 paragraphs.
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What are the different investment options and their current market rate of returns.
The investment options before you are many. Pick the right investment tool based on the risk profile, circumstance, time zone available etc. If you feel market volatility is something which you can live with then buy stocks. If you do not want to risk the volatility and simply desire some income, then you should consider fixed income securities. However, remember that risk and returns are directly proportional to each other. Higher the risk, higher the returns. A brief preview of different investment options is given below:
Equities: Investment in shares of companies is investing in equities. Stocks can be bought/sold from the exchanges (secondary market) or via IPOs - Initial Public Offerings (primary market). Stocks are the best long-term investment options wherein the market volatility and the resultant risk of losses, if given enough time, is mitigated by the general upward momentum of the economy. There are two streams of revenue generation from this form of investment.
1. Dividend: Periodic payments made out of the company's profits are termed as dividends.
2. Growth: The price of a stock appreciates commensurate to the growth posted by the company resulting in capital appreciation.
On an average an investment in equities in has a given higher return with higher risks attached to it.
Bonds: It is a fixed income ...
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