Money Management Final-1 Assignment Example | Topics and Well Written Essays - 3000 words

Money Management Final-1 - Assignment Example Investing the entire sum of money in a single stock exposes the investor to the risk of that asset. So, in case when the price of that security falls in the market due to any reason, the investor will suffer huge losses. This, risk of concentration of money in a single stock is mitigated through diversification. Risk Profile Analysis Investments are subject to market risks and a rational investor always prefers to minimize risk over given investment return of maximize return over given risk. The risk profile of a portfolio is determined on the basis of risk appetite of investor. If the investor is risk prone then such investor would prefer investing larger portion of portfolio in risky assets such as common stocks or growth EFTs where as an investor with a lower risk appetite would prefer investing in safer assets to ensure protection of principal investment. The logic or procedure to determine the amount to be invested in risky assets is determined on the basis of time horizon, obje ctives, and diversification. Objectives and Asset Mix The main objective of the portfolio is to get adequate amount of long term growth in income. In order to achieve this objective, substantial amount of the investment corpus should be invested into equity class ETFs and fewer portions should be invested in debt instruments. This is because, while the equity will ensure long term capital growth for the investor through proper diversification, debt portion of portfolio will ensure fixed and stable income for the investor. Proper diversification will help reduce the overall portfolio risk by spreading stock specific risk into combination of securities. Determining Time Frame of Investment In order to evaluate the performance of the portfolio, sufficient time horizon should be chosen since the objective of portfolio is long term capital growth and not speculative trading. Keeping the objective of portfolio, a time horizon of minimum five years will be chosen to evaluate the performanc e of the securities. Money Management through ETF On the basis of the portfolio objectives, time frame of investment and risk profile analysis discussed earlier it can be said that Exchange Traded Funds (ETF) can be an effective money management tool. ETFs are investment funds that are often traded as commodity in the stock markets. Thus, ETF funds are traded similar to stocks in the stock exchanges but at the same time it is essential to know the process of buying and selling of ETFs in the stock exchanges. The process allows market players to determine ETF prices by analyzing the forces of demand and supply of ETFs in the market throughout the day. If appropriate strategy is not formulated then the investor might be adversely affected from price fluctuations throughout the day. Further the investment objective will determine whether the portfolio will be able to provide sufficient returns to the investors to attain such objectives

Case study -- managing the performance of individuals

-- managing the performance of individuals - Case Study Example This model presumes that human behavior is rational, therefore driven by the best information available at the time and designed to maximize individual interest’ (Pheffer 1998). Expected financial return motivates people to accept jobs and exert the level of effort that they are willing to spend on those jobs. If they know an incentive is waiting after a job well done, then they’ll be more encouraged to work. The act of giving inspires people to do more than expected of them. Transaction-cost theory identifies transactions organized by markets and hierarchies. It contains the notion that people not only seek self-interest but do the job with ‘opportunism’ (Meschandreas 1997). If they know that they are monitored by their superiors, then they exert more effort in doing so because recognition or even a possible promotion or other advantageous opportunities are in the offing after a commendable performance. Good examples are what happened in companies such as IT Lab Ltd., Peppermint PR, Metaswitch, Bravissimo and Madgex. Simple tokens or little gifts like ‘chocolates, cups of tea, bottles of wine, vouchers for meal out, manicures at posh beauty salons, jars of sweets or even a simple thank you note’ (employeebenefits 2010) await an employee who had exerted an extra effort in doing a difficult project. These simple little gifts excite the employees because of the rationale behind it. Receiving these small tokens mean recognition and appreciation for a job well done. 2. The article has only a limited number of criticisms on the trivial (gift) token as a reward strategy. With reference to theories of reward strategies expand the discussion of potential problems with this form of reward. Justify your answer with examples from the case study. Though it appears to some companies that giving small token of appreciation to employees is effective because it keeps the employees’ morale high through recognition and reward, still , it is not applicable to all companies at all times. In fact, it has a downside. As Pheffer puts it in her â€Å"Six dangerous myths about pay†, this practice has been shown to undermine teamwork, encourage employees focus on the short term and lead people to link compensation to political skills and ingratiating personalities rather than to performance’ (Pheffer 1998). Consulting firm, William M. Mercer says ‘most performance-based pay plans absorb large amounts of management time and resources and they make everyone unhappy’. If the employees are motivated of the small tokens then the motivation was influenced by extrinsic factor. ‘Extrinsic factor (rewards) has an immediate and powerful effect but won’t necessarily last long (Armstrong 2009 ). Saying thank you and giving small tokens are good motivational practices but the employers should exercise extra caution in doing so because other employees who do not receive a gift may feel left-ou t or feel there’s an ongoing inequity and favouritism. Also, it is wise for the company to be specific in giving presents to avoid tax issues and hurting the budget. They should also remember that rewards should be given infrequently and on schedule to perk the excitement of the employees. There’s also a possibility that the employer overlook someone’s hard work and commitment to the company. If this happens, the little incentive will do more harm than good because it might create grudges between employees. Like