Question

In: Finance

What experience do you have with financial instruments? Which have you been involved with (personal investing...

What experience do you have with financial instruments? Which have you been involved with (personal investing or other)? What is your take on the current environment of the financial markets for individual investors AND companies? How do ethics and mission factor into your perspectives?

Please, answer all questions in details... Thanks in advance!

Solutions

Expert Solution

I have the experience of investing in both equity and debt markets. I have a portfolio consisting of equity stocks and also bonds in my portfolio. I own equity stocks that are a part of the S&P 500 and bonds of shorter duration.

The current environment is one in which the US Federal reserve is increasing interest rates as the inflation is increasing and there is overall growth in the economy. Therefore, as the Fed increases interest rates, the cost of capital for firm increases. Hence small firms may find it difficult to raise capital. Therefore, in a rising interest rate scenario, it is better to have large cap stock in your equity portfolio.

In the bond portfolio, as the market interest rates rise, the prices fall. The prices of long-term bonds fall further. Hence it is recommended to own short term or short duration bonds in an increasing interest rate cycle.

Yes, ethics play an important role in investing. You do not want to invest in stocks that are managed by a non-transparent management. Some firms like Enron in history have presented a rosy picture in the financial statements when the actual was not so rosy. This led to massive losses for investors and the government has brought in rules in that affect after the scam. Hence, investors are recommended to invest in clean firm with transparent management.


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