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Basic investment decisions

Investments Defined

Investments is the study of the process of committing funds to one or more assets
        Emphasis on holding financial assets and marketable securities
        Concepts also apply to real assets
        Foreign financial assets should not be ignored
Investments & Financial Assets
Essential nature of investment
        Reduced current consumption
        Planned later consumption
Real Assets
        Assets used to produce goods and services (including land, buildings, machinery, and knowledge used to produce goods & services
Financial Assets
        Claims on real assets or income generated from them (including stocks & bonds)
Most individuals make investment decisions sometime
        Need sound framework for managing and increasing wealth
Essential part of a career in the field
        Security analyst, portfolio manager, registered representative, Certified Financial Planner, Chartered Financial Analyst
                                                    Investment Decisions

Underlying investment decisions: the tradeoff between expected return and risk
        Expected return is not usually the same as realized return

Risk: the possibility that the realized return will be different than the expected return
        The Tradeoff b/w
ER and Risk
        Investors manage risk at a cost - lower expected returns (ER)
        Any level of expected return and risk can be attained
        The Investment Decision Process
Two-step process:
        Security analysis and valuation
       Necessary to understand security characteristics
        Portfolio management
       Selected securities viewed as a single unit
       How and when should it be revised?
       How should portfolio performance be measured?

This post first appeared on Student Oriented, please read the originial post: here

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Basic investment decisions


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