Stock Exchange Investment Term Paper

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Investment Strategy

When the market crashes, turns bearish, or severely corrects, investors not only lose objective things such as money, they also lose the sustaining functions of which the investing process (and/or money, which may psychologically represent self-esteem, independence, power, etc.) has been the source. That means, in addition to objectively not having the money to buy that new house or car, self-esteem drops, and the investors capacity to calm themselves down is diminished, motivation wanes, confidence is shaken, and vitality ebbs. A down market represents an injury to our total sense of self and all the functions that sustain it. In a general way it represents a hope or fantasy lost.

For the young investor, with a large amount of earning power remaining in his life, the ups and downs of the market are small obstacles to the long-term objective of amassing a financial nest egg on which to retire. However, for the investor who is nearing retirement, taking into consideration their risk tolerance is one of the most important aspects of finding a suitable investment vehicle.

Peter Smith and his wife are nearing retirement. Peter has 950,000 to invest today, and over the next 5 years he will accumulate another 50,000 to round out the number to an even 100,000. Their ideal goal is to create an investment portfolio which will allow them to live comfortably for the rest of their lives, and pass much of their accumulated wealth onto their two children at the time of their passing.

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Unfortunately because they have waited so long to begin an investment career, they have limited both their options, and their ability to safely secure a higher return. While Mr. Smith may be knowledgeable in the workings of the market, he cannot control them, and with the nearing event horizon of their retirement, he will be wise to bow to his wife's conservative bent as they seek the right investment vehicles for their future.

Creating an investment portfolio is an important mixture of finding a return with which the client is satisfied, and an investment vehicle in which the client is comfortable riding for a number of years. Many investors say they are prepared to take high risks in the pursuit of high profits. Most are wrong. When an investment starts going down in value, feelings of nervousness quickly start to surface. The trouble is, people only discover their lack of risk tolerance once their investment has lost value. By then, it can be too late to recover all of their initial capital. (McEwen, 2001

An individual's investment approach may be costly if it's not the right one to achieve individual financial goals. This is true for any approach whether it's called conservative, moderate or aggressive. An investment approach must be based on financial goals, ability to save, overall personal financial assets, investment time horizon and tolerance for risk -- the ability to accept the swings that come with investing in the financial markets (Block, 1998)

The other important factor in successful.....

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