Kristin Decides to Try Her Hand at Investing Research Paper

Kristin Decides to Try Her Hand at Investing - Research Paper ExampleYounger persons wishwise tend not to be responsible for dependents, large assets, and, in many cases of young professionals, their own health coverage. An older person, however, is by his or her nature more than risk-adverse, since there is a more limited time span in which to make up potential losses due to investments. Consequently, investing is more puzzling for the younger investor like, in this case, Kirstin who is a 26-year-old female potential manager. Although Kirstin has to build for the future by selecting more secure investment options, she should also try to maximize her gains by taking on more risk than the average investor did. This is not to say that Kirstin should become a gambler with her money on the stock market rather, she should formula to expand her capital in a safe, prudent manner. Regardless of an investors age or level of risk-aversion, one should always seek diversification as a first principle (Melicher & Norton, 2008, p. 8). Even though Kirstin does not have a large asset pool to pull from in terms of desire out investments, she ought to seek out holdings in as many asset classes as she can. This means that spreading her assets between equities (blue chip and growth), bonds (corporate and municipal), cash equivalents, and commodities. Spreading assets almost to the different classes means that Kirstin is hedging her risk against sharp declines in any of the specific categories, such that the other categories can support her portfolio in tough times. The absolute majority of this portfolio must be concentrated in areas with highest growth potential, but diversifying between these instruments is a good strategy. If Kirsten decides to put most of her savings into blue chip or growth equities, she is in all probability to see a copesettic return on her investment if the overall market is bullish or relatively stable. Depending on how pine she expects to hold these investments, she may see a return on investment (ROI) at a percentage higher than any percentage offered by a corporate or municipal bond holder, or any cash equivalent offered by her local bank. Assuming that Kirstens idea of a satisfactory return is greater than the 3 percent interest paid by her bank for a Certificate of Deposit, then she is more likely to see want returns if she invests in equities as opposed to other kinds of cash equivalents and bonds. Because Kirsten can be certain that her CD with her local bank is insured (that is, she cannot lose the principle amount, like she can with an equity or bond), she must be willing to accept only a return greater than 3 percent. Depending on the nature of the bonds Kirsten investigates, she is likely to find bonds that have greater than 3% interest. Especially corporate bonds of companies with lower credit ratings, which are consequently more risky, Kirsten could find rates of return nearing 10 percent. Kirstens decisions about where to put her money could be driven by any number of factors, including but not limited to tips from friends, independent research, consultations with financial planners, developments in the news, or developments in her own personal life (Lim, 2010, p. 19). Most likely, Kirsten will decide what to invest in based on her risk-aversion and the principles of good investing. As already discussed, the principle of diversification may draw her to look at both equities and bonds, in addition to the cash equivalent in which she plans to invest $3,000. In addition, Kirsten