Question

What is in the News? (Due by Friday) Go to an Online news source like one of the following: New York Times on the Web CNN Fox Business BBC Business A Local News Publication Find a story in this week's news about financial management. This is a very broad topic, so you should have plenty of material from which to choose. Find something interesting and have a good time with it! Post to the forum folder below, write between 2 and 4 paragraphs on how this story may effect you as a financial manager now or in the future. Your answer should be at least 250 words. Paraphrase the article and then apply the knowledge you have gained. Document your research using appropriate APA style conventions.

Answer 1

Financial Management Article

  A Careful Asset Allocation Strategy That can Help Create Wealth

As a finance manager, it is very important to understand the importance of financial planning. A common mistake which most of the investors make is to follow a particular performance trend of a particular asset class and invests accordingly or focus too much on short term class items like which stock to pick or which stock to buy / sell. A long term asset portfolio can be built only through proper asset allocation which includes well diversified portfolios.

The first and foremost step of wealth creation is having adequate savings after meeting all the monthly requirements and keeping aside enough money for emergencies. Following steps are followed by a financial manager in helping is clients attain robust asset allocation:

• Determine the investment objectives and policy – The investor will have to work out his objectives first and then evolve a policy with the amount of investible wealth at his command. The objectives of an investor must be defined in terms of risk and return. Also, an investor has to identify the categories of financial assets he/she would be interested in.
• Undertake security analysis – This step would consist of examining the risk-return characteristics of individual securities or groups of securities identified under step one. The aim here is to know if it is worthwhile to acquire these securities for the portfolio.
• Construct a portfolio – This consists of identifying the specific securities in which to invest and determining the proportion of the investor’s wealth to be invested in each. For example, a conservative individual may decide invest 70% of his cash in debentures and the remaining 30% in equity shares. On the other hand, an individual who is prepared to assume greater risk may decide to invest 70% of his cash in equity shares and the remaining in debentures.
• Review the portfolio – As time passes, the investor would discover that securities that once were very attractive have ceased to be so. Also, new securities with promises of high returns and relatively low risk have emerged. In view of such developments it would be necessary for him to review the portfolio. He would liquidate the unattractive securities and acquire the new stars from the market. In a way, he repeats the first three steps of the investment process.
• Evaluate the performance of the portfolio – A rational investor would constantly examine his chosen portfolio both for average return and risk. Measures, for doing so, must be developed. Also, the calculated risk-return positions must be compared with certain yardsticks or norms. This step in the investment process, thus acquires considerable significance since the tasks involved are quantitative measurement of actual risk and return, their evaluation against objective norms