Please enable JavaScript.
Coggle requires JavaScript to display documents.
Asset allocation and security decision (Chapter 2) - Coggle Diagram
Asset allocation and security decision (Chapter 2)
financial plan
insurance
health insurance
disability insurance
life insurance
automobile and home (or rental) insurance
cash reserve
meet events
reduce the likelihood of being forced to sell investments
cash reserve = about six months' living expenses
investments easily convertible to cash
structure
future plans
risk aversion characteristics
financial status
needs
age
life cycle
life cycle phases
accumulation phase (early to middle years of working career)
consolidation phase (past midpoint of careers)
spending phase (begins after retirement)
gifting phase (may be concurrent with the spending phase)
life cycle investment goals
long-term, high-priority goals (higher-risk investments)
lower-priority goals (not critical)
near-term, high-priority goals (short time horizons)
portfolio management process
examine current and projected financial, economic, political, and social conditions
implement the plan by constructing the portfolio
policy statement
feedback loop: monitor and update investor needs, environmental conditions, evaluate portfolio performance
corporate bonds
secured bonds
collateral trust bonds
equipment trust certificates
mortgage bonds
senior secured bonds
debentures
subordinate bonds
income bonds
convertible bonds
warrants
zero coupon bond
investment objectives
risk tolerance
individual's psychological makeup
influenced by one's current net worth and income expectations
return objectives
capital preservation
capital appreciation
current income
total return strategy
liquidity needs: liquid if it can be quickly converted to cash at a price close to fair market value
time horizon
long investment horizons
shorter time horizons
tax concerns
legal and regulatory factors
unique needs and preferences
special equity instruments
options: rights to buy or sell common stock or other underlying assets at a stated price for a period of time
puts: sell
calls: buy
warrants: options giving the holders the right to buy its common stock
real estate
direct real estate investment
purchase of raw land
land development
purchase of a home
rental property
real estate
low-liquidity investments
diamonds
art and antiques
antiques
coins and stamps