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Investment (Essay Sample)


It required detailing into an investment issue


The report herewith details the investment of the start capital of AED 400,000. The aim of investment is in the garnering of the maximum amount of profit with minimal probability of risk and this is what one delves to accomplish as espoused in the report. The commencement of investment was on September 2013 and involved a diverse portfolio. The calculations are based on standard recognized practices and give the correct figures and estimates on the investment patterns and expected patterns.
The onset involves the understanding of investment. This is the use of seed asset to acquire possible returns. These profits can be in the form of revenues, interests and dividends. One purchases a diversified range of material based on the level of risk and returns involved. The arrayed list of one’s investments is oft referred to as one’s investment portfolio. This report espouses the various steps in investment, their relevance and the investments chosen based on these steps. The calculations and decision premises are expounded on in this report ( Ramaswamy, 2012)
Step 1: Having Investments Financial Foundation and Expected Conditions.
Having the amount of AED 400,000, it can be assumed that one has the financial background set for a dip into the investment world. One needs to ascertain that there are no pre-existing high interest debts that would suck upon the said investment and serve to dwindle the profits or the rates of return on the investment (Hagin, 2013). One tries to regulate the expenditure. The expenditure should strive to be lower than the investment’s returns as to ensure continuity in the profits and revenues from the said investment.
Before investment, one should have built strategies in the case of a fail in the investment too. The fail safe should be in way of having some emergency funds that can be used to get one-self back up. The money would mainly be for one’s upkeep in the form of living expenses that are easily accessible for use and not tied up with the investment portfolio.
Step 2: Setting and Analysis of Investment Targets and Goals.
The reasons behind my investment are espoused here with the aim of explaining the aim of the investment at hand. The duration and the expected amount of returns are the key focus here. My goal is to have recouped on a third of the investment within a trimester. This would be a third of AED 400,000. This is to the tune of AED 133333.33. Another aim in the long term would be to have coupled enough returns to be a comfortable retiree in the next 23 years whilst having a college fund for the expected offspring ( Ramaswamy, 2012). The goal is not to become a business mogul or billionaire, but have the ability to afford the finer items in life on a controlled level without too much strain to one’s finances.
Step 3: Investment Plan Adoption
The adoption of an investment plan is based on the investment goals and the budget at hand. In this case the budget is the amount AED 400,000. The objectives were the recoupment of a third of the investment within a three month period and the long run plan of retirement in twenty three years to a comfortable suburban life. The investment plan adoption relies heavily on the volatility of the investment option. This is its shifts in performance in the business cycle as compared to the benchmarks. There is also the matter of its alignment to the investment objectives and the expenses and fees associated with the investments. All this is in comparison with the other available investment options. The investments available are stocks, bonds and alternatives. These are the main options. The alternatives include derivatives, real estate and precious metals.
Step 4: Analysis of Investment Options/Vehicles
The choice of investment vehicles is based on the returns on investment and the risk entailed in the investment. One should invest in what one has a full understanding of its workings (Hagin, 2013). The risk is the lack of certainty on the returns by the investment. The main types of vehicles as per the objectives are common stock, short term investment vehicles and speculative investment tools.
Short term investment vehicles have a life-span of one year whence they mature. They offer the lowest risks and include certificates of deposit, treasury bills, bankers’ acceptances and commercial paper. The certificate of deposit acts as debt instrument that has a specific date of maturity and interest rate. It is issued by a bank and indicates the deposition f a specific amount of money. The risks involved are the penalties in early withdrawal and their non-tradability. They can only be traded when in bulk from large money market investors. Treasury bills are other securities issued by the government showing obligation. They also have a one year or less of maturity. They incur interest which is accrued. The other form of revenue incurred is from the discount in the issuing of the t-bill. There is thus a difference in the nominal value and the discounted price which is paid on maturity. The best part of this is that they are free of risk as their yield is fixed. The challenge faced would be in that they are auctioned on a highest bidder basis and thus might be expensive. Their high liquidity is part of the snare of the treasury bills as they are never out of demand. They are thus tradable but prices vary according to the interest rates on the market. There are also non-competitive bills which are issued at an average of the competitive bills.
Commercial paper represents a promissory note issued by a corporation. It is the private sector version of the Treasury bill. It is however unsecured and short term. It is a way for the corporation to borrow from the investors in a much cheap...
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