Page 137 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes the opposite futures position if the options buyer exercises his or her right to the futures position
specified in the option. The price of an option is determined by supply and demand principles
and consists of the option premium, or the price paid to the option seller for offering the option
and taking on risk.

Self Assessment

State True or False:
6. Hedgers typically include producers and consumers of a commodity or the owner of an
asset or assets subject to certain influences such as an interest rate.
7. Hedgers typically fall into three categories: position traders, day traders, and swing traders.
8. Commodity trading provides an ideal asset allocation, also helps you hedge against
inflation and buy a piece of global demand growth.
9. The primary advantage of a mutual fund is that you can invest your money without the
time or the experience that are often needed to choose a sound investment.
10. A Call is the option to sell a futures contract.

7.9 Summary

Investment Strategy is usually considered to be more of a branch of finance than economics.
It is defined as set of rules, a definite behavior or procedure guiding an investor to choose
his investment portfolio.

Return on investment (ROI) is profitable when Vf/Vi-1>0 and the investment is deemed
to be unprofitable when the value of final investment is less than that of the initial
investment.
An investment strategy can be either active or passive. A passive investment strategy
attempted to minimize transaction costs. An active investment strategy guide is used to
maximize returns based on moves such as proper market timing.
Small time investors can adopt the buy and hold investment strategy to invest in equities,
which although volatile in nature, give favorable long run returns.
The strategy of value investing, a classic investment strategy propagated by Benjamin
Graham simply concentrates on the strategy that an investor buys shares of a company as
if he was buying off the whole company without paying any attention to the stock market
scenario or any exterior conditions such as the political climate.

An investment strategy in mutual funds is probably the best bet for a profitable investment.
Mutual funds is defined as a pool of money supplied by different investors and in turn
used by the mutual fund company to invest in various assets such as stocks and bonds.
Diversification is the allocation of assets to several categories in order to spread, and
therefore possibly mitigate, risk. Regardless of your investment objectives, diversification
is an important consideration in building any portfolio. Diversification can be achieved in
any number of ways, including by: Bond Type, laddering, barbells.

Barbells are a bond investment strategy similar to laddering, except that purchases are
concentrated in the short-term and long-term maturities.

Bond swapping is the sale of a block of bond swaps and the purchase of another block of
similar market value.

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