In selecting the investment to be made by an investor, a number of issues will be considered such as risks, returns long term requirement of the funds, interest rates prevailing in the market and other issues. In choosing this portfolio various market indicators have been considered and these market indicators that have been considered in selecting this market portfolio taken by the stock and bonds returns offered by the company, the prices of the company, volume of trading and the type of management that the company has. Diversification and differentiation of investment has been also taken into consideration in selecting the portfolio for the investor(Fisher & Jordan, 2006).
Specific securities to be invested
The securities selected in this portfolio are in New York stock exchange, Paris stock exchange, Saudi Arabia stock exchange and London stock exchange. The main reason for purchasing stock and bonds traded in various markets is because of diversification of risks both systematic and unsystematic risks. In London stock exchange, the investor will purchase stocks of Barclays PLC stock, Vodafone PLC and bonds of Smithkline Beecham. In Paris stock exchange, shell stocks shall be purchased as well as Orange telecommunications stocks. In New-York stock exchange, I will advise the investor to purchase diamond-rock Hospitality Company shares ryanair holding stocks, bonds of Coca Cola Company and Microsoft. In Saudi Arabia the investor should invest in Saudi International Petrochemical company. I will advise the investor also to take a four year government bonds of the government of England, government of London, government of France and the government of United States of America. The main reasons for selecting this type of securities for investment is because of differentiation and diversification of the risk both foreign exchange and the risk within the country.
Analysis of the securities invested
The securities selected for investment will be analyzed based on various issues such as price earning ratio, interest yield, and systematic risk for holding some of the securities. In selecting this stocks price earning ratio has been considered as the basis for selecting the stocks in various aspects. I have considered the current actual price earning ratio with the market ratios. I have analyzed the past performance of this company in terms of price earning ratio with a point that am satisfied that the stocks taken from a specific industry have in the past been performing well and they represent the best investment as per the needs of the customer. In a normal circumstance the principle determinant of a good price earning ratio for a stock is considered using the following variables (Fisher & Jordan, 2006).
- Sales stability of a company
- institutional ownership of the company
- the volume of the stocks traded in the market
- expected 5 year growth of earnings
- the amount of debt financing and
- The dividend payout ratio taken by the company.
Another factor that I considered in selecting the stocks that have been considered in this case is the present value of dividends and capital gains. This forms the basis for selecting a stock for my current investors because they expect growth for their investment and a constant inflow of cash since they have only 3 years to retire. However if they were having many years to retire I would have selected different stocks (DeFusco, Dennis, Pinto, Anson, and Runkle, 2007).
In selecting the bonds that I have though they are good for these investors I have considered the interest yield and the performance in the market. The corporate bonds I have selected have high yielding history therefore they are good for investment. The performance of interest rates for the government bonds in the countries selected are considered to be more stable although not high earning therefore they can make a good investment (Harrington, 1987).
The risk of the securities to be invested
The invested securities pose various risks these risks include foreign exchange risks, market systematic risks and unsystematic risk (Lundin, 2004). Since the investor is currently living in Germany and wishes to settle in France, for some time the flow of income, will have to face foreign exchange risks for stocks from London, USA and Paris. However some of the countries in question share the same currency therefore there will be no problem of foreign currency exchange except the market risk. However stocks from NY and Saudi Arabia will face foreign exchange risk (Sharpe, 1970).
In order for the investor to receive his money in Germany without many problems he should operate an online bank account because most banks are offering online services which ensure he receives money instantly (Levy and Post, 2005).
The investor should make his investment in the above mentioned stocks and bonds as well as ensure the investment is made immediately at this period when there is a credit crunch to avoid buying the stocks and bonds during the period when the prices of the shares are high (Gapenski and Brigham, 1994).
- DeFusco, R.A., Dennis W. M., Pinto J. E., Anson J. P., and Runkle, D. E. (2007). “Quantitative Investment Analysis” J. Wiley and Sons
- Fisher D E. & Jordan R J (2006) Security analysis and portfolio management, prentice hall of India private limited
- Gapenski l, Brigham E; (1994) Financial Management: Theory and Practice; Dryden Press. Hall, 7 th Enhanced Media Edition,
- Harrington R.(1987); Modern portfolio theory 2nd ed. Englewood cliffs, N J: Prentice Hall, 1987
- Levy H and Post T (2005); investments published, Prentice hall
- Lundin, M. (2004): “Tactical Asset Allocation and the information ratio” Journal of Asset Management 4, (5)
- Sharpe, W.F (1970). Portfolio theory and capital markets. New York: McGraw-hill