Portfolio for Investors
List the key consequences, for an investor, of inflation remaining within the 2- 4 % range for the next 10 years.
Answer Discussion would be on some of the consequences for investors of a continued period of relatively low inflation levels ( 2-4%) * The investors should * Readjust expectations of investment returns * Have greater focus on income production rather than growth * Recognize a greater need for diversification of assets * However, avoid the temptation of over-exposure to higher risk investments * Come to terms with the difference between nominal and real rates of return * Maximize after tax return
Richard Khoo is considering selling his equity portfolio and reinvesting the proceeds into short-term fixed deposits to take advantage of current high interest rates. What comments would you make regarding his strategy?
Answer Richard Khoo’s investment needs and objectives are not known so care must be given in giving advice. You should make the following general comments in your response: * The total investment will be unbalanced with no equity or long-term fixed interest exposure, and no exposure to property either directly or indirectly through listed property trusts * If equity markets rise quickly he may be unable to take advantage of the upturn * His portfolio is currently producing high income derived from short-term interest rates but this position may change if interest rates fall * Excess income may be spent requiring lifestyle changes should interest rates and income subsequently fall * His portfolio provides no protection from inflation as it contains no growth element
Reasons for holding debt securities
The rationale for holding debt securities in a portfolio could be stated as all or any of the following: * To provide superior investment returns to those obtainable from short term money market investments, given a portfolio allocation to low risk liquid assets as part of the asset
Answer Discussion would be on some of the consequences for investors of a continued period of relatively low inflation levels ( 2-4%) * The investors should * Readjust expectations of investment returns * Have greater focus on income production rather than growth * Recognize a greater need for diversification of assets * However, avoid the temptation of over-exposure to higher risk investments * Come to terms with the difference between nominal and real rates of return * Maximize after tax return
Richard Khoo is considering selling his equity portfolio and reinvesting the proceeds into short-term fixed deposits to take advantage of current high interest rates. What comments would you make regarding his strategy?
Answer Richard Khoo’s investment needs and objectives are not known so care must be given in giving advice. You should make the following general comments in your response: * The total investment will be unbalanced with no equity or long-term fixed interest exposure, and no exposure to property either directly or indirectly through listed property trusts * If equity markets rise quickly he may be unable to take advantage of the upturn * His portfolio is currently producing high income derived from short-term interest rates but this position may change if interest rates fall * Excess income may be spent requiring lifestyle changes should interest rates and income subsequently fall * His portfolio provides no protection from inflation as it contains no growth element
Reasons for holding debt securities
The rationale for holding debt securities in a portfolio could be stated as all or any of the following: * To provide superior investment returns to those obtainable from short term money market investments, given a portfolio allocation to low risk liquid assets as part of the asset