Bonds and equities, financial market
Year on year, plenty of individuals embracing investment in financial instruments and assets for the first time, have increasing cases of reported withdrawals citing dissatisfaction and continual failure to pace their portfolio diversification to the transforming financial market. Often, the frustration emerges from the complexity in aligning the portfolio components to an individual's investment goals while sustaining attention to the potential of risk that may intimidate the investor confidence.
Contrary to the popular thinking that an investor has the capability to make a killing in the financial market in a short period, such sudden gains are similarly wiped out in sudden loss of equal magnitude. Nevertheless, committing to longer investment terms is never enough to guarantee investment success in financial instruments. Building an investment portfolio demands understanding the existence of different kind of financial assets and developing the investment strategy based on the investor's own goals and ascertained financial situation. Although investing in financial assets is geared to wealth maximization, the ultimate choice and proportion associated between bonds and equities is dependent on the investor's age, preferences, risk appetite and the distinguishing features.
[...] Additionally, bonds are subject to credit risk rating systems. For instance, a bond earmarked with a rating of AAA of a blue-chip issue exists in the highest ranking and exhibits the likelihood of timely repayment of the full amount. The bond rating feature using notable rating agencies including Moody's, Standard and Poor's, and Fitch system, assist the investors determine the particular risks attributable to each company's credit risk. It facilitates in determining the credit quality as the distinguishing feature of junk status as not all bond investment has inherent safety, as some are riskier than the unpredictable stocks (McGagh, 2013). [...]
[...] The Impact of Interest Rates on Bond Investments. Retrieved August from http://www.schwab-global.com/public/schwab-gcben/advice_and_research/market_insight/investing_strategies/bonds/impact_of_interest_ra tes_on_bond_investments.html 12 Williams, R. T. (2012). An Introduction to Trading in the Financial Markets SET. San Diego: Elsevier Science . [...]
[...] By contrast to the debt instruments such as bonds where the holders can either hold them to maturity within the fixed term or trade them in the secondary market, equities are distinct. Equities are irredeemable as during their issue they are not accorded the option of holding to maturity (Haight, Ross, & Morrell p. 157). Equity investment provides permanent equity 5 to the company throughout its going concern period, therefore according the investor a long term liquid investment. Lastly, equity shares are issuable in three instances including initial public offer, rights issue and the bonus issue unlike the bond agreements where the company lacks the authority to annex them to other previously issued (Bahnemann p. [...]
[...] Haight, G. T., Ross, G., & Morrell, S. O. (2008). How to Select Investment Managers and Evaluate Performance : a Guide for Pension Funds, Endowments, Foundations, and Trusts. Hoboken, N.J: John Wiley & Sons. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2010). Intermediate accounting : IFRS approach (Vol. 2). Hoboken, N.J. [...]
[...] In practice, the payment timeframe varies with the issuer as it is possible to make monthly, quarterly and annual interest payments. For instance, taking a bond whose face value is and a coupon of implies that the issuing entity pays an annual interest of £500 every year. Thirdly, most bonds have a maturity date which specifies the date when the investor's principal amount is repaid and no further periodical payments are made after the specified time. Bond maturity varies with the institution's decision of obtained the debt ranging from a single day to long term approaching tens of years. [...]
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