Investors Follow Different Investment Philosophies
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Identify the problem of the case.
The couple are new to investing activities and so they are undecided if they are supposed to put their money on buying stocks or in investing on debt securities and how much . It is mentioned that time is already passing and they continuously find no answers to their confusion.
Identify the factors that causes the problem.
One factor is that the couple are new to investing or in other words inexperienced, they find it hard to decide where to put their money in. Second is their fear, risk is involved in investing so this puts them in the verge of a very important decision making of what they must do to their lifes worth of money for their retirement.
Identify the considerations that must be taken to resolve the problem. (you may state principles, concept or theories taken from the discussion of chapter 1)
Investors follow different investment philosophies as they move into their different stages of their life cycle. Young investors are aggressive and they become more conservative as they age. For an investor approaching the middle age stage of life like the Barramedas, family demands and responsibilities such as educational expenses and retirement, contributions become more important. Investors generally purchase stocks for their appreciation potential. Investors generally purchase debt securities for income and stability of principal. The mix of equity and debt securities an investor chooses depends upon his or her goals, objectives and risk tolerance.
Give your alternative solutions to the problem. Explain each (why you are proposing these solutions)
150,000 debt securities
100,000 stocks
150,000 education of nephews
50, 000 savings
50,000 enjoyment
Half of the money should be invested to secure their future retirement; 150K in debt securities and 100K in stocks. They should invest their money more in debt securities because stocks can appreciate in value over time but are not guaranteed to increase in value, and they can decrease in value as time progresses . Debt securities will be worth their face value at maturity. 150K to finance their nephews education. 50K for cash liquidation and emergency needs. 50K for their enjoyment.
Conclusion and recommendation.
Neither debt securities nor stocks are without risk. Each is subject to different risks. stocks may increase or decrease in value. Debt securities are subject to company risk, credit risk and interest rate risk. Generally,