Investment Advisor Case Study

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1. Please describe the role of an investment advisor? What are the outcomes for a good advisor? In which case the client and the advisor will be in “win-win situation”? Investment advisors provide clients, which are the individual investors advice on financial matters including financial planning and selling securities and make recommendations on the on ways to best utilize their money. Investment advisors have a hard job because they have to research the market place and advise the clients on products and services that are available and make sure that they are aware of and understand those that best meet their needs and expectations, and at the end they secure a sale. They also have to take in to account the client’s financial resources…show more content…
Diversification is the most important component in reaching long-term financial goals. It is important that investors diversify among different asset classes such as stocks and bonds. This decision is usually made in asset allocation served as the core strategic overlay in providing a benchmark before any further tactical or market timing positioning of securities. Diversification could occur across asset classes and geographically too meaning international stocks, allowing for construction of asset combinations with return and volatility characteristics that are acceptable to many investors with different risk tolerance levels and investment goals. When selecting securities to invest in another way of diversifying is to buy securities in the same asset class that are not affected by the same variables such as grocery stores, airline companies, entertainment companies, technology, they are completely different businesses. Building a portfolio that includes stocks from different sectors, the chances are that one or more will always be doing better than average. When it comes to bonds, investing in a number of government bonds with different times to maturity can reduce risk as well as increase returns. A diversified portfolio will have less volatility and steadier returns…show more content…
It means that the market leads investor’s to make irrational financial decisions. This means that when investors are overconfident they overestimate the market and make exaggerate choices. When an investor is overconfident they think that they have everything it takes to win neglecting all the other investors in the whole market. In the long run it can harm an investors stock picking ability leading them to make high volume trades meaning that they take on more risk at higher prices. This can cause them to lose all of there investments because they think that they are better than others. Some investors make forecasting errors because they give to much weight to recent experiences, they may think that a stock is going high dramatically and may invest there money on it, but a significant fall may cause them to lose out on their investments. Investors can sometimes underreact to recent news (new news) of a firm; they can be too slow on updating their expectations in response to recent data and information. Some investors are the opposite meaning they give too much importance to recent events and information, but we should know that a small sample or data might not be that ideal and representative. We consume wrong information causing us to make wrong financial decisions. Investors
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