Category: Finance

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Individual Investor Life Cycle

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Individual Investor Life Cycle

Individual investor life cycle indicates the investment behavior of investor over different age of their life. Investment decision is based on the age, financial condition, future plans and risk characteristics of an individual.

Investor mainly invests for getting return which can compensate the sacrifice of present for more future earnings and security. As a financial plan investor can adapt different insurance policies or reserve cash for future. Although investor have to take risk of reserving cash or investing cash but they are ready to take some risk according to their risk taking behavior.

individual investor life cycle

Phases of Individual Investor Life Cycle

An investor passes through four different phases in life. These are:

  • Accumulation Phase
  • Consolidation Phase
  • Spending Phase
  • Gifting Phase

Accumulation Phase: Investor early or middle to their career tries to accumulate fund so that individual can have money to spend in the later phase of their life. Some people accumulate fund to buy house, car or other important assets and some people accumulate for their children’s education cost, life peaceful life after retirement.

Funds invested in the early phase of life gives an investor a huge amount of fund which is compounding over the years

Consolidation Phase: Consolidation phase is the midpoint of their career, in this phase they earn more, spends more and pay off all their debts. In this phase moderately high risk taken by the investor but for capital reservation some investor prefer lower risk investor. Individual invest in the capital market and investment securities.

Spending Phase: This phase starts when an individual retire from job. Their overall portfolio is to be less risky than the consolidation phase; they prefer low risky investment or risk free investment. People prefer fixed income securities like bond, debenture, treasury bills etc. In this phase they need some risky investor if they have extra money so that future inflation can be adjusted.

Gifting Phase: If individuals believe that they have enough extra funds to meet their current and future expenses then they go for gifting money to their friends, family members or establish charitable trusts. These can reduce their income taxes and they also keep some fun for future uncertainties.

Over the different phase investor behave differently and invest in their preferred sector according to their risk taking behavior.

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The Portfolio Management Process

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The Portfolio Management Process

Before discussing the portfolio management process lets have some idea of portfolio, basically portfolio management process is the set of securities or combination of investment securities.

The process of managing a group of investment or portfolio is never stop, it is a continuous process. Investor needs to develop plan and policies to form a portfolio, monitor the performance and review portfolio time to time.

The Portfolio Management Process

The Portfolio Management Process

The portfolio management process is followed by four common steps, these are:

  • The first step of portfolio management is the formulation of policy statement either individually or get assistance from others. This policy statements is the road map of how much an investor is willing to take risk.
  • In the second step manager should study current financial and economic condition to forecast the future economic return or condition. Economy is dynamic which is continuously changing over the time because of the direct or indirect impact of the micro and macro economic variables.
  • The third step of portfolio management process is the formation of portfolio according to the policy statement and risk taking behavior of the investor. Portfolio should be formed by using both risk free asset and risky asset so that ultimately risk can be minimized.
  • The final step of the portfolio management is the continuous monitoring by the portfolio managers so that any investment correction can be done as required. Mainly investment should be concentrated with capital gain and profit via dividend.

These above four step basically used for managing portfolio by the investor or by the portfolio manager.

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Written by

Md. Nahian Mahmud Shaikat

Student of MBA

Institute of Business Administration (IBA)

Jahangirnagar University

Email: [email protected]

Phone: +8801914262602

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Will Profit Maximization Always Result in Stock Price Maximization

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Will Profit Maximization Always Result in Stock Price Maximization

Some people my ask will profit maximization always result in stock price maximization? Profit maximization is not always result in stock price maximization, because profit maximization can only ensure higher earnings per share not the increased value of stock. Profit can be manipulated by the managerial actions, like reducing operating costs through hampering normal flow of actions.

Will Profit Maximization Always Result in Stock Price Maximization

Stock Price Maximization

Example:

Suppose managers want to show higher profit this year, to do this they reducing operating expenses by not entertaining repair and maintenance of machines. So cost of repair and maintenance saved. This definitely increases the profit of the organization but in the next year company has to spend higher operating cost for repair and maintenance which will ultimately reduce the profit.

Here manager’s action increase the profit of the firm but it will not maximize the price of stock because there is no increase of operating efficiency.

So it is clear that more earning per share does not ensure price maximization of stock in the market.

 Actually wealth maximization can create positive effect which helps to maximize the price of stock.

Written by

Md. Nahian Mahmud Shaikat

Student of MBA

Institute of Business Administration (IBA)

Jahangirnagar University

Email: [email protected]

Phone: +8801914262602

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Maximize the Value of a Corporation

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Maximize the Value of a Corporation

Question may arise to our mind that What does it mean to maximize the value of a corporation?

To understand and answer this type of question one thing is enough that, maximizing the value of a corporation indicates the value maximization of the wealth of a company. We can say the value of a corporation is maximized when the price of stock is increased. Value maximization is preferable by the owner because it ensures not only the capital gain by selling stock in the market but also get profit through dividend. It is manager’s responsibility to ensure the value maximization.

Maximize the Value of a Corporation

Maximize the Value

For example:

In 2013 the stock price of a company or corporation was tk 120 but in 2014 the price increase to tk 210 in the secondary market. This indicates that company successfully utilizes its resources which actually increased the value or price of the stock.

We know that maximization of value of a corporation is reflected by the increased value of stock. Above example shows that there is increase in the price of stock, so we can say that value of corporation is increased.

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Finance

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What is Finance

Finance is concerned with decisions about money i.e. how money or fund will be collected and use in a productive sector properly. Before 1960 it refers only the collection of funds but after that the idea was changed.

Some People May ask what actually finance is?

Finance is not limited to collection of funds; it must ensure proper utilization of funds.

finance

What is Fiance?

Finance is a life blood of every corporation, because we cannot do any business activity without the help of finance. Some people says that the overall activities related to planning, organizing, raising, conservation, using and controlling of funds is known as finance.

According to Harvard & Upton it is that administrative area which is concerned with arrangement of cash and credit effectively.

It consists of three interrelated areas.

Areas of Fiance

  • Money & Capital Market
  • Investments
  • Financial Market

So concluding with the idea, it is not only collection of fund where the funding cost is lower and then utilizes it to ensure maximum rate of return for the investors. Managing funds is not an easy task but it is manager’s responsibility to manage the funds which can ensure the substantial growth of a company.