Question

In recent weeks we have focused intently on the impact that investor confidence and reliance upon established financial models can have on decision making. Explain whether you believe that investors are motivated to engage in behaviors to diversify with regard to their investment strategies.

Answer 1

The investors often tend to diversify the investments on asset classes that are the established financial models and they determine the percentage of the portfolio to allocate each one of them. The asset class include stocks, bonds, fixed income debt instruments etc. But the investors become conscious about the fluctuations in the rate of return. Diversification of the investments is important for providing exposure to the investor. When investors become conscious, then it affects decision making. Their confidence in the financial model is important so that they can totally rely on it and invest their money with all faith.
When the investor will rely upon and show confidence in the financial model, this will benefit the decision-making process of him that how much to invest, what should be the rate of return, etc. Once he relies on the model then it would be easier for the investor as well as the project managing team to move ahead in the process of completion of the project. The smooth flow of the working of the project will ultimately motivate the investor to engage more in the behaviours of the firm for the diversification of their investment strategies as well as their growth in the investment market.