An individual is surmounted with several options in life, be it with regard to: Career planning, Personal affairs, Travelling, Budgeting, Financial planning to avail tax benefits or Investing.
Amidst several alternatives an investor looks for maximization of benefits by reviewing the pros and cons of every option especially focusing on the aspect of negative and positive returns.
However, he may pursue the following measures to have a more logical approach.
Determinations of the risk return profile
The risk perception of an investor varies. A risk adverse investor avoids risk and hence is satisfied with a low rate of return whereas a risk lover assumes a high level of risk and expects a high return. Aggressive investors dare to take a chance of putting their resources in the stock market and act strategically working on the buy, hold and sell options during the bullish and bearish phase of the market.
Conservative investors are skeptical about investing in the market as it is prone to volatility. They seldom take such risky ventures rather prefer to be on the safe side and usually prefer to put their savings in fixed income investments like fixed deposits.
Portfolio management is an art into which the fund managers of the Asset management companies are critically involved into. It is a strategy for diversification of risk by spreading the risk over a number of assets like investing in debt funds, equity funds, hedge funds or choosing the systematic investment plan or corporate bonds and equities or derivatives trading.
Selection of the Company/ sector of investment
Investing in a booming sector has a good prospect like power sector, retail sector, food processing, pharmaceutical, real estate health care, and education. But certain economic parameters as inflation, taxation, demand and supply, foreign trade, fiscal deficit affects the performance of these sectors.
Thus environmental scanning is essential element as there is a variation in sect oral growth with respect to GDP. For a company the net worth, price earnings ratio, earning per share, return on investment, profit loss account and the balance sheet are important indicators as it highlights the solvency, performance, growth and stability. The choice lies for owning creditor ship or ownership securities in becoming the stakeholder of the company.
Commoners who desire have an edge in the market are required to have a close watch of the stock movements and act diligently according to the market behaviour. Although it may seem peculiar at times but taking a short position or a long position in the market depends upon this.
Even commodities trading, currency trading and trading of derivative instruments like futures, options and swaps are on the upswing. Arbitrageurs take advantage of the differential pricing in the different markets of the world. It is the speculators and the arbitrageurs that play a good game, whereas the innocent investors are guided by the brokers, stock broking houses, market analysts or financial advisors.
Certain deductions are allowable like for payment of insurance premium, repayment of loan, investment in tax free bonds, infrastructure bonds, contribution to a charitable institution and investment in ELSS (equity linked saving scheme), etc. In order to save a huge tax burden, investors plan to allocate funds in these avenues.
Selection of the financial instrument
Picking up equity stocks or bonds/debentures would depend upon the expected return and the beta of the stock. Usually high beta stocks are considered as aggressive securities and low beta stocks are defensive securities. The market prices constantly fluctuate.
Thus speculators hedge against the risk. The equity research reports can also help in a big way in the stock selection process. The interest on bonds/debentures is also a motivating factor, as the bond yield varies with the maturity period.
Today there are many options available when it comes to investing. You should learn about these principles to invest smart .
It is usually suggested that you invest in the right products that you understand well. Taking the expert help is equally important when you are just starting to invest for your future.
Author bio: Robert is an investing and finance experts who is known for providing best investment tips to his clients for better future.
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They are well experienced in the markets and aim at protecting their clients’ capital while ensuring that they get highest possible returns. You can get in contact with them soon for your investment needs.
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