Not Risk Averse Essay Online For Free - Free Essay Example

Sample details Pages: 7 Words: 2202 Downloads: 1 Date added: 2017/06/26 Category Finance Essay Type Research paper Tags: Risk Essay Did you like this example? I often hear finance managers say an investment related proverb that goes like this; be risk diverse, not risk adverse. An inquisitive, or even not so inquisitive mind may wonder what does this concept really mean? and why is it so important when investing? This paper seeks to provide answers to the querying mind and to explain, not only by definition but also via demonstration the importance of having a diversified portfolio. It will also include reasons why investors should be risk diverse and not risk adverse. Part 1: Diversification, Risk Management Market Cycles Investopedia defines diversification as a technique that reduces risk  by allocating investments among various financial instruments, industries and other categories. Its main aim is to maximize returns hence the reason it is invested in different area that will each react differently when exposed to similar conditions. . In short, diversification denotes the old saying dont put your eggs in one basket. The article some sample portfolios emphasized the importance of having a diversified portfolio. It sees diversification as the spreading of ones money among various sorts of investments to limit risk and maximize growth potential. These investments are primarily categorized by stocks, bonds and cash. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk (Investopedia). Don’t waste time! Our writers will create an original "Not Risk Averse Essay Online For Free" essay for you Create order Risk Management If one caught a whale the first time he or she ever picked up a fishing pole, perhaps theyd think of themselves as being lucky. If they year after year they reeled it back in with the same result, theyre assume that pond was the right place to be. Likewise, investors who purchased their first stock during one of the most extraordinary bull market in history (1982 -1999) conditioned themselves to believe that their pond (the equity market) was the correct place to be for year to year returns. What these investors discovered later though is the fact that markets move in cycles and like fishermen, they must monitor and adapt to the changing conditions. More than 100 years of equity market history has shown that there are uncertain cyclical movements in the market. With that fact being established, it is paramount that investors prepare for risk and build a portfolio that can withstand any economic environment. In doing so, they (the investors) should diversify among assets that hav e been historically proven to be defensive against risks that may be encountered in the three major economic environments; noninflationary growth, inflationary growth and recession. The article Rethinking Risk states that a properly diversified portfolio can help preserve principal while taking advantage of opportunities that arise as the economy transitions across cycles. While history repeatedly shows the cyclical movements of the market, many investors today view bull markets as normal and therefore tend to chase returns at the expense of risk management with the reason being, prior to 2000s; no person significant losses were experienced. The term baby boomer is used to describe the generation that lived through the bear market (1966 to 1982). These boomers began to seriously invest during the bull period from 1982 1999. There they had consistently gained high levels of return with low volatility. What many of these investors faired wasnt losing money; rather it was missing o ut on gains. For those who considered the bull markets to be the norm, the two bear markets of 2000s really did come as a shocker. Investors are therefore advised to rethink their assumptions about the equity market as it related to investing and risk. All investments involve risks. The closer the investor is to retirement the riskier the asset becomes because their compensation, savings and assets will generally decrease (outliving savings). Phases of Investing Asset Accumulation Pre-Retirement Retirement Time until retirement 10+ years Less than 10 years Retired Risks -Not enough growth to out space inflation -Losses may lead to abandoning strategy -Lots to lose and less time to recover -Purchasing power -Inflation -Portfolio longevity -Limited contributions Diversification It is important that investors prepare themselves in the event that for one of the economic environment were to occur. Different asset classes have historically outperformed during different economic environments, hence portfolio diversification is importance when one intends to pursue financial goals across market cycles. Diversification is the key to risk management. As aforementioned, it is simply investing in a variety of assets which in turn assures investors that if a situation like the bull market fails and some asset classes were to fall, other assets in the portfolio will be able to offer stability. Analysis of the markets history indicates that the allocation of assets needs a logical approach with sound knowledge of risk. In the 1990s the market moved upward and hence investors, due to their growth potential were attracted to stocks within the technology and communications industries. Technology then went downhill causing the investor that invested only in that sector to pay the price. When the market recommenced its gain between 2003 and 2007, investors no longer invested in one sector; rather, they included international and emerging markets stocks and private equity to their portfolios. But as we can remember, when the market went into recession in 2007, all the asset classed plummeted together. What happened then can be simply explained. In the investors quest of returns, they evaded assets such as cash and long term government bonds that offered lower growth potential than of equity but they have been proven to withstand the pressure of recession. What happened there therefore was a case which involved them diversifying their sources of returns but failed to do so according to risk. Investors should therefore diversify among asset classes that have been proven to defend against risks that may arise from the three major economic environments mentioned earlier. Equities and other equity-like investments have historically been proven to perform well when noninflationary growth is existent. These investments seek growth, which helps protect against shortfall risks in retirement. Currency hedged government bonds and cash are investors best market downturn defense during recessionary periods. While the fact that they lower growth potential is evident, they are also good defendants of steep market loss risks. Commodities have during inflationary periods, revealed its capabilities of protecting against the risk the inflation poses towards corroding ones buying power. Commodities are unpredictable and may not meet the suitability requirements of all investors. The table below taken from Invesco Portfolio Principles: Rethinking Risk, shows the annualized performance of various asset classes stating from the year, 1929. The data is presented within six time periods that represents five distinct market environments. The importance of Diversification Time Frame 1929- 41 (13 yrs) 1942 65 (24 yrs) 1966- 81 (16yrs) 1973- 81 (9yrs) 1982-99 (18yrs) 2000 -09 (10yrs) Market Environment Deflation Low-inflationary growth Inflation Low inflationary growth Credit Supply Reduction* Corporate bonds 6.30% Stocks 15.93% Inflation 6.93% Commodities 16.87% Stocks 18.77% Long-term government bonds 8.81% Long-term government bonds 4.76% Inflation 3.05% T-Bills 6.38% Inflation 9.32% Corporate bonds 13.61% Corporate bonds 7.01% T-Bills 0.82% Corporate bonds 2.61% Stocks 6.35% T-Bills 7.53% Long-term govtbonds13.51% T -Bills 3.02% Inflation -1.60% Long-term govtbonds2.16% Corporate bonds 3.07% Stocks 6.11% Commodities 7.63% Inflation 2.60% Stocks -2.47% T- Bills 1.61% Long-term govt bonds 2.57% Corporate bonds 2.86% T-Bills 6.30% Commodities 2.28% Commodities index was not incepted Long-term govt bonds 2.84% Inflation 3.32% Stocks -4.00% The period den oted by * did not represent true deflationary period because consumer prices did not fall. The reduction in credit supply however led to economic contractions somewhat similar to what would be experienced in a deflationary environment. Sources: Ibbotson, Lipper Inc. Stocks are represented by the SP500 Index; inflation by the consumer Price Index; Commodities by the SP 500 GSCI Index; long-term government bonds by the Ibbotson U.S. Long-Term Government Bond Index; T-Bills by the Ibbotson U.S. 30 Day T-Bill Index; and corporate bonds by the Ibbotson U.S. Long-term Corporate Bond Index. An Investment cannot be made directly in an index. Past performance is not a guaranteed future result. Part 2: Risk adversity vs. Risk Diversity Risk is often defined as a measure of the probability and severity of adverse effects [Lowrance 1976]. It is the fundamental of investment and is also very essential. An investor trade to make money, and the only way that can happen is by taking some form of risk. If excessive risk is taken however, it can be very disastrous. There is nothing wrong with being risk adverse (risk friendly), however, problems exist where there is undiversified risk in a portfolio that may lead to it being risk-free hence return-free. Must I note that there is nothing wrong with an investor that is both willing and able to take a more that average level of risk, however, it must be done rationally. It must also be noted that a higher risk level does not signify putting all your eggs in one basket since higher-risk portfolios are customarily comprised of various classes of assets that are sensibly managed. Risk adverse investors dislike risk, as a result, they tend to avoid adding high risk investmen ts to their portfolio which will consequently make them lose higher rates of return opportunities. Such safer investments seeker investors generally prefer investments with low returns such as index funds and government bonds. The Risk Reward trade off Financial Dictionary defines risk reward tradeoff as The concept that every rational investor, at a given level of risk, will accept only the largest expected return. In a circumstance where two investments are given at the same risk level, ceteris paribus, rational investors will chose the asset that with the highest return. It is because of this concept; riskier bonds pay a higher coupon rate and bonds pay lower returns than that of stocks reason being that bond investments are safer because they are less risky. (Finance-Dictionary). It is basically deciding the amount of risk one can take when developing their portfolio. The risk-return tradeoff is the balance an investor must decide on between the desires for the lowest possible risk for the highest possible returnsÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ low levels of uncertainty (low risk) are associated with low potential returns and high levels of uncertainty (high risk) are associated with high potential returns (Investopedia). H ere is an example taken from Investopedia.com that explains how the risk-reward theory works. The risk-free rate of return is usually denoted by the quoted yield of U.S. Government Securities. For this purpose the risk-free rate is assumed to currently be 7%. Therefore, for having no established risk, an investor can earn 7% per year on his or her money. However if the index funds are averaging 13 -15.5% per year, no one will settle for 7%. It must be noted that index funds dont return 15.5% every year, instead they return -5% one year and 25% the next. Putting that example in simple terms, in order to receive higher returns, investors must be willing to take on considerably more risk. Sample Historical Portfolios The graph inserted below highlights the historical performances and risk of portfolios ranging from 100% stocks to 0% stocks. It shows the average return and standard deviation, which is also a measure of risk) for the portfolios individually. The data in this portfolio ranges from the period 1927 to 2007. (Crackerjack) The graph depicts the risk-return tradeoff where the higher the percentage of stock in the portfolio increases the returns and the risk. Higher returns symbolize the involvement of risk and obviously, a lowered risk level will signify lower returns. It is also good to note that as the investment fluctuated so did the range of returns. The Pie chart below represents a portfolio that I will recommend which consist of the allocation of 60% stocks Crakerjack The graph below highlights the historical returns for the portfolio above from 1927 to 2007 Crackerjack Facts about that portfolio From 1927 to 2007, the average annual return for a diversified 60% Stock portfolio was 9.5%. During any consecutive 3 years from 1927 to 2007, this portfolio lost money 8 times out of a possible 79 periods. In 2 of those 8 times, it lost less than 1.2% of its original value. The two worst 3 year periods were 1929-1931 and 1930-1932 (Great Depression), when the portfolio lost about 46% of its original value. From 1927 to 2007, the average annual return for a diversified 60% Stock portfolio was 9.5%. During any consecutive 3 years from 1927 to 2007, this portfolio lost money 8 times out of a possible 79 periods. In 2 of those 8 times, it lost less than 1.2% of its original value. The two worst 3 year periods were 1929-1931 and 1930-1932 (Great Depression), when the portfolio lost about 46% of its original value. (https://www.crackerjackgreenback.com/category/diversified-portfolios/) Recommendations When investing it is important that investors include securities from all the asset classes. This ensures at least a portion of the investors holdings is doing well. One can also invest in securities of the same asset class that are not affected by the same variables When investing it is advised that one should not invest in variables that may increase or decrease in price at the same time Diversified portfolios are less volatile with sounder returns so it is therefore advised that portfolios be diversified. Conclusion There is no success without risk. If people could have predicted the future, they would have known when there will be a recession, inflation or a great depression. Since predicting the future is virtually impossible investors have to let faith be their guide. They have to take the risk and wait to see how the market will play out. Risk is good, it is importantÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦it is essential.

Causes of Divorce Essay - 886 Words

Cause and Effect of Divorce In today’s society, divorce is more the norm than ever before. Forty percent of all marriages end in divorce. Divorce defined by Webster is the action or an instance of legally dissolving a marriage. Divorce itself is both a cause and effect. There are many causes of divorce. Some of the causes happen more often than others. For instance, the most common causes of divorce are poor communication, financial problems such as lack of money, lack of commitment to marriage, a dramatic change in priorities, infidelity, sexual indiscretion and the ease of getting a divorce. These are some of the most common causes of divorce. The effects of a divorce seem insurmountable when comparing the grief it causes on†¦show more content†¦The lack of money cause financial problems such as not being able to pay the bills, arguing over money and not being able to do extra activities such as going to the movies or eating out. (Divorce Cause and Effect) The past to present, people determined to live together, so they depend on each other. Some couples are unable to maintain their relationship; therefore they choose divorce, which is one of the solutions with problems between husband and wife. Most people should think carefully before they get married. The divorce rates continue to increase nowadays. There are other causes of divorce, changing women’s roles, stress in modern living and lack of communication. The first cause of the rate of divorce to increase is women change in roles. Men have to earn money to afford the expenses of the family. Most women only do housework. Women have no money leading to depend on the husband’s money. It is difficult for most women to separate from their husband. The equality between men and women in a role, because women can work outside to earn, while men can help with household duties such as cooking, cleaning, washing and caring for their children. The divorce rates rise . (Cause and Effect Essay - The Causes of Divorce) Another cause confirms the increase in divorce rate is stress in modern living. Many people have considered pressures to earn money. It seems the stress came since they were children. Most causes having an opportunity to find aShow MoreRelatedEssay on Main Causes of Divorce982 Words   |  4 PagesHowever, fifty percent of these couples cannot seem to fulfill their marriage vows. As a result, they choose to get a divorce. Divorce is very easy to do nowadays unlike the past. Statistics show that the four main causes of divorce are: financial difficulty, women are more independent, infidelity, and couples are getting married at a young age. 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Some spouses are unable to maintain or keep their relationship, so they divorce. when any couple wants to get married they should have something in common and share the same values, religion, beliefs or interest , so that they can minimize bad ending as break up .Divorce has physical and mental health effects especially on children and women and it can affect the whole society. Divorce between parents can be disastrous and painful on

Frankenstein, Blade Runner and the Natural World Free Essays

Continually throughout history humanity’s connection to the natural world has been probed, celebrated, mocked and forgotten in a haphazard cycle that has been classified as human nature. Through a comparison of Mary Shelley’s 19th Century didactic novel, ‘Frankenstein’ (the Modern Prometheus) and the director’s cut of Ridley Scott’s ‘Blade Runner’, a common conception of man’s place amongst nature is posed as being submissive to her dominance. Though each text shares the same values each represents its core concepts in a manner inimitable to its context, ultimately critiquing the respective society’s, bringing to light the fears that the majority of society refused to acknowledge at the time. We will write a custom essay sample on Frankenstein, Blade Runner and the Natural World or any similar topic only for you Order Now These fears centre mainly around three broad concepts; scientific discovery, industrial development and religion, which collectively invite consideration of humanity’s unabridged connection with the natural world and how it has been altered over time. In the spirit of Enlightenment, a large cultural movement in the pre-19th century world, Shelley conceived Frankenstein and, in effect, his creation. The Enlightenment movement encouraged people to turn away from faith and to start relying more on reason and the answers developments in science were beginning to supply. â€Å"A mummy again endued with animation could not be so hideous as that wretch. † The juxtaposition of the Creatures unnatural image with the romantic values of the sublime and creative genius characterises the monumental shift away from the natural. The death of her protagonist, Victor Frankenstein, represents the expectations the romantic writer has for the enlightenment movement, alluding to the inevitable doom it will bring upon humanity. By creating a juxtaposed image between Frankenstein, who is repeatedly surrounded by pejorative terms such as ‘suffer’, ‘malice’ and ‘bitter’, and his brother Ernest, characterising the latter as ‘full of activity and spirit’, Shelley places Ernest in the role of Romanticism whilst Frankenstein personifies the Enlightenment movement. Their contrasting connections to the natural world and their subsequent lives, permits Shelley to critique her own context and the ideals within it. Her views on Romanticism and Enlightenment are similar to that of Rousseau, a known philosopher who suggested that ‘†¦nothing is so gentle as man in his primitive state, when placed by nature at an equal distance from the stupidity of brutes and the fatal enlightenment of civil man. ’ This suggests that humanity’s connection with nature is essential to ensure harmony within ociety and in effect it’s survival in the world. Reinforcing this theory, Blade Runner, presents an image of this corrupted harmony and its effects on humanity. Ridley Scott’s text reveals that within his time, 178 years after ‘Frankenstein’, scientific development still held the same destructive concerns. However, by the use of film rather than text, Scott represents the fears of his society in a much more vivid app roach, preventing them from being so easily disregarded. Current technology now allowed scientists to experiment in the world of robotics and areas such as IVF, leading many to question how this would affect humanity’s natural roles within society. This is demonstrated as Scott blurs the lines between what makes a human truly human. He does this by giving the replicants human emotions and unique identities. Pris’ words ‘I think Sebastian, therefore I am’ reinforce this idea while also alluding to the evolving knowledge and skills of the artificial beings, their natural abilities to adapt and progress. These developments in science within the film have dismal consequences, ones which Scott fears for his own world, and the continuous downfall of rain is just one presentation of this, symbolic of mother nature grieving over her destruction. As times were changing in both contexts and new sciences were explored people repeatedly questioned their faith, causing many religious debates and conflicts. ‘Frankenstein’ represents common battles of moral and God, going so far as to be known as the Modern Prometheus. The reference to the Promethean myth foreshadows the consequences Frankenstein will undoubtedly have to face. Blinded by his own ambition and dreams of glory and fame he endeavours to take on the role of God by creating life and disrupting natural order. In creating his monster Frankenstein also usurps the natural role of women as child bearers, questioning their place and use within humanity. â€Å"A new species would bless me as its creator and source; many happy and excellent natures would owe their being to me. The juxtaposition of the phrase ‘excellent natures’ with the clearly unnatural give insight into the one-tracked desires of Frankenstein, not pausing to consider the moral issues surrounding his experiments. However, he ironically seems to blame God and fate for the destructive course of his life, telling Walton ‘destiny was too potent, and her immutable laws had decreed my utter and terrible destruction. ’ Faith subsequently had a ambiguous impa ct on humanity’s connection to nature, representing the ideals of natural order and the consequences of destroying it’s structure. Similarly, the role of God is also obscured in the dark scenes of Blade Runner, stemming from the lack of nature. Religious allusions are rich throughout the text, beginning within the first sequence when syncopated bursts of flames create an image resembling Dante’s hell, suggesting hell on earth. â€Å"A new life awaits you, the chance to begin again in the New World. † After destroying their own world the Tyrell corporations promises of bigger, better things are seen as a missionary act, the answer to humanity’s problems. This earns Tyrell levels of power unequitable on Earth and lead him to believe himself to be a God. The sharp cut lines and magnitude of the Tyrell building reinforces these implications as it looms over the city, placing him above the rest of humanity. However, the triumphant forces of nature come through in the final scenes as Tyrell meets his end, and natural order begins to be rectified with the death of Pris and Batty. The white light illuminating Batty’s form as his body shuts down gives him a godly image, supported by the nail protruding through his hand and the white dove that flies away, a symbol of peace and hope for restoration. This scene reinforces natures purity and the extent of its healing powers in contrast with humanity’s destructive impact on its elements. Mary Shelley and Ridley each created monumental texts with the common concepts of scientific development, industrialisation and religion. Both explore how humanity’s connection with the natural world is distorted and overshadowed by the influences of modern advances and opportunities, leading to its exploitation and neglect. How to cite Frankenstein, Blade Runner and the Natural World, Essay examples

Stress and Stress Management free essay sample

Stress resulting from major life changes, such as graduating, becoming a parent, getting fired, retirement and marriage can cause a loss of interest in or ability to perform a job because of stress and result to stress- related emotional illness. SWhen a doctor suspects that a patients illness is connected to stress, he orshe will take a careful history of recent stress (family or job problems, other illnesses, and so on). Many doctors will evaluate the patients personality as well, in order to judge how well the person copes with stress. There are a number of psychological tests that doctors can use to help diagnose the amount of stress that the patient experiences and the coping strategies used to deal with them. Stress-related illness can be diagnosed by family doctors as well as by mental health specialists. Recent advances in the understanding of the many complex connections betweenthe mind and body have produced a variety of popular ways to treat stress-related illness: †¢Medications. We will write a custom essay sample on Stress and Stress Management or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page These may include drugs to control blood pressure or other physical symptoms of stress, as well as drugs that affect thepatients mood (tranquilizers or antidepressants). †¢Stress managementprograms. These may be either individual or group treatments, and usually involve analysis of the stressors in the patients life. They often focus on job or workplace related stress. †¢Behavioral approaches. These strategies include relaxation techniques, breathing exercises, and physical exercise. †¢Massage. Therapeutic massage relieves stress by relaxing the large groups of muscles in the back, neck, arms, and legs. Cognitive therapy. These approaches teach patients to reinterpret stress in order to alter thebodys physical response. †¢Meditation and spiritual practices. Relaxing, meditating and spiritual practices can help reduce stress. Treatment of stress is one area in which the boundaries between traditional and alternative therapies have changed in recent years, in part b ecause some forms of physical exercise (yoga, tai chi, aikido) that were once considered to be fads have become widely accepted as useful parts of mainstream stress reduction programs. Other alternative therapies for stress, which are occasionally recommended by mainstream medicine, include aromatherapy, dance therapy,nutrition-based treatments (including dietary guidelines and nutritional supplements), acupuncture, and herbal medicine. The prognosis for recovery from a stress-related illness is related to a widevariety of factors in a persons life, many of which are inherited or beyondthe individuals control (economic trends, cultural stereotypes and prejudices). It is possible, however, for humans to learn new responses to stress. A persons ability to remain healthy in stressful situations is sometimes referred to as stress hardiness. Stress-hardy people have a cluster of personality traits that strengthen their ability to cope. These traits include believing in the importance of what they are doing; believing that they have somepower to influence their situation; and viewing lifes changes as positive opportunities rather than as threats. Its not possible or desirable to totally prevent stress, which is an inevitable part of life. In addition, specific strategies for preventing stress varywidely from person to person, depending on the nature and number of the stressors in a persons life, and the amount of control he or she has over thesefactors. In general, a combination of attitude and behavior changes works well for most patients. The best way to prevent stress is for parents to teach healthy attitudes and behaviors within their family.