DIFFERENT INVESTMENT STRATEGIES
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DIFFERENT INVESTMENT STRATEGIES
An investment strategy is an approach to investment which defines the choices an investor makes for his or her portfolio (C Haberman and Vigna2002), choosing several factors to determine the appropriate investment strategies. The choice of an active or passive investing strategy determines the investment strategy of an investor. Active investing involves buying and selling if stocks frequently, while passive investing includes buying and selling of shares after a long time. The time horizon the investor is in also affects the choice of an investor regarding the best investment strategy to adopt, for example, how close one is to the significant life events of his or her life, for example, retiring or buying a house.
Investment via Mutual Trust/Managed Funds
A mutual fund is an investment vessel, professionally managed where investors pool money to purchase securities. The investors can be institutional or retail. Mutual funds have both advantages and disadvantages. The benefits of mutual funds are that they diversification (GUO, 2016) and liquidity, they are managed by professionals, and they provide economies of scale. Disadvantages include that the investors in a mutual fund must pay various fees and expenses and that they do not also have control of their portfolio (Shukla, and Gupta 2017)
Investment in Government and Corporate Bonds
Government bonds are an investment approach where investors lend money to the government in exchange for interest payments, while Corporate bonds are a debt security issued by a corporation to investors. Both the government and corporate bonds have advantages and disadvantages. The primary benefits include bonds are liquid, and equal redemption is easy (Liddle,2015) unlimited options as they frequently perform well than other assets, and risk is usually relatively low compared to equalities. Disadvantages include bonds are subjects to risks such as interest rate risk and prepayment risk. An investor can lose their money if the company goes bankrupt. Some bonds are also callable, meaning if the company chooses to pay off the bond early, the investor is forced to find a new place for his money (Milosevic,2016.). In a rising market environment, an investor could also experience some losses.
Use of Gearing (Borrowing to Investment)
Gearing is an investment strategy that involves borrowing money to invest. Gearing enables an investor to boost his or her investment earning by increasing the number of funds available for investment. The advantages of a gearing strategy include tax savings from a negative investment and potential cash benefits. However, gearing disadvantages include higher financial risk (Martinez-Vazquez and Vulovic 2015); a negatively geared investment can cause losses, and the investment may not provide the return expected.
Investment in Gold Bullion
Bullion investment is a strategy in which institutional investors use to hedge against inflationary effects on their portfolios, and it is also a legal tender that is held in reserves by central reserves. Bullion includes approximately 20% of mined gold. The gold is hailed as bullion and used to pay international debts. It can also be used to stimulate the economy of the country through gold lending. Advantages of Gold Bullion as an investment strategy include, there is always a significant global market demand for gold, gold is a very liquid asset (Watson, 2017), gold also hedges financial market risks. The primary disadvantage includes, gold generally appears to have no yield; there are always some storage fees for large amounts of bullion, and also gold can volatile on a short term basis (Narsey,2016). Also, gold, just like any other investment, is affected by the political situation in the world at any given time.
References
Haberman, S., and Vigna, E., 2002. Optimal investment strategies and risk measures in defined contribution pension schemes. Insurance: Mathematics and Economics, 31(1), pp.35-69.
GUO, H., 2016. Measuring mutual fund performance in data envelopment analysis. Data Envelopment Analysis and its Applications, p.123.
Shukla, R., and Gupta, S., 2017. Working and Organization of Mutual Fund Company. Journal of Accounting, Finance & Marketing Technology, 1(1), pp.22-30.
Liddle, S.T., 2015. Molecular Metal-Metal Bonds (pp. 1-568). Weinheim, Germany: Wiley-VCH Verlag GmbH & Co. KGaA.
Milosevic, M., 2016. Polymerization mechanics of dental composites–advantages and disadvantages. Procedia Engineering, 149, pp.313-320.
Martinez-Vazquez, J., and Vulovic23, V., 2015. Fiscal Adjustment and Subnational Borrowing Regulations.Subnational Debt Management and Restructuring, p.72
Watson, M., 2017. Historicizing Ricardo’s comparative advantage theory, challenging the normative foundations of liberal International Political Economy. New Political Economy, 22(3), pp.257-272. Narsey, W., 2016. Currency Policies for Britain 1660–1892: Adoption of Gold Standard and Rejection of Silver and Bimetallism. In British Imperialism and the Making of Colonial Currency Systems (pp. 21-52). Palgrave Macmillan, London.