Investment Portfolio and Interpretation of Financial Information

This report provides the information about the different types of investors’ needs by analyzing their profiles. Based on these information, the most suitable portfolios of investments will be provided for investors in order to get high return with the lowest risk as much as possible.

Student ID: F05-194

Number of worlds: 3,278 (Not including in tables) Submission deadline: 20th, December 2013

Table of Contents

Introduction 1

3.1 Identify the needs of different investors 1

3.2 Design portfolios of investments for different individuals 2

1 Peter 3

2 Michael 5

3 Sandy 6

3.3 Explain the functions of financial advisers and how to select one 8

3.4 Explain investors’ rights and the protection available to them 9

4.1 Explain the information in the financial pages of The Financial Times 11

4.2 Calculate stock exchange ratios and be able to explain what they mean 12

4.3 Describe and evaluate collective investments 15

Conclusion 17

Reference 18

Introduction

This report provides the information about the different types of investors’ needs by analyzing their profiles Based on these information, the most suitable portfolios of investments will be provided for investors in order to get high return with the lowest risk as much as possible Furthermore, the protections and the rights of investors also are mentioned Moreover, several tips about the different types of financial advisers and the ways to select one are referred to investors Additionally, some significant stock ratios of BIX Companies are calculated The scope of this report includes:

 The needs of different investors

 Design portfolios of investment

 Functions of financial advisers

 Investors’ rights and protections

 Stock ratios

3.1 Identify the needs of different investors

There are four types of needs of different investors:

Investors’ need

for Retirement

Focused on generating wealth over the medium to long term, while maintaining some protection from fluctuation or returns in the short term (Sunsuper, 2013, p 5)

Balanced

Investors’ need

Focused on producing returns which are well ahead of inflation over the long-term (Sunsuper, 2013, p 5)

Investors need

for Growth

Focused on producing returns which are significantly ahead of inflation over the long-term (Sunsuper, 2013, p 5)

Peter is 57 and his need for investment is to prepare for retirement because he will be retire soon

in less than 3 years In addition, his saving less than £10,000 – this is a small amount saver during his working time Furthermore, he does not have any experience on investing For these reasons, Peter would want to protect his principal against inflation without experiencing Moreover, he wants to have a stable income in the future for expenditures when retiring

Michael is 45 and he has a plan to spend the money in next 5 years It means that he would want

to earn high return from his investment for medium or long term with the lowest influence of inflation Hence, his need for investing is growth Furthermore, Michael has some experience about investing It means that he is capable to evaluate his investment in part carefully and logically This also help Michael to take some risk in order to maximize the return In addition, he has more than £25,000 to invest

Sandy is so young (only 16) with many ambitions and wishes about the future, especially for education Moreover, she actually needs the assets to pay for college It means that she expects to have high return from her investment in order to prepare for her college in 3 to 5 years Based on these goals, her need in investing is growth Besides, she has non-experience about investing It means that the high term investment with low inflation risk may be suitable for her

3.2 Design portfolios of investments for different individuals

To invest more effectively, the investors need to have at least an investment portfolios to consider

in order make the decisions about investing Investment portfolios – or, in plain English, collections of assets – can diminish the risk inherent in stock markets by diversification or avoiding having too many eggs in one basket (Cowie, 2013) Based on the needs of the investors, the suitable products will be calculated the return and the risk so that the investors can know how much they can earn and the risks which they have to face The table bellows will show the characteristics, return and risk of some investment products in specific institutions

1 Peter

The Peter’s profile: Financial position Retirement Plans and Goals

Investment horizon Short-term to medium-term investment Risk tolerance Moderately Conservative

Investment objective Income

Based on his profile, a portfolios of investments will be built as follows:

Cash ISA is a safe product for Peter to invest, however its return is very low In addition, the inflation rate in UK recently has fluctuated and sometimes it is very high (2.8%) Therefore, Peter should only invest 20% of his money on this product

Peter should spend 30% of his money for investing in high yield bonds with higher return than cash ISA Otherwise, this is also a high security capital so it is good for Peter in the future when

he retire

Large-cap equity can bring high return for Peter and this product has high liquidity, so Peter can convert it to cash easily for his expenditure Furthermore, the companies which have the large capital can sustain and increase its share value Besides, this product could grow in the future It means that Peter should invest 50% of his capital on this product in order to enhance the money with lower risk

2 Michael

The Michael’s profile: Financial position Retirement Plans and Goals

Future Expenditure Needs Investment horizon Medium to Long-term investment Risk tolerance Moderately

Investment objective Growth & Income Based on his profile, a portfolios of investments will be built as follows:

With the need of growth for the investment in order to spend in the next 5 years, Michael should invest 50% to have high return and good liquidity Moreover, this product has low risk In addition, he should invest only 30% of his capital for small-cap equity to make high return on the future However, small-cap equity has higher risk than large-cap equity, so Michael should invest his remaining capital in cash Isa and high yield bonds (10% for each product) in order to diversify the risk of his investment

3 Sandy

The Sandy’s profile: Financial position Future Expenditure Needs

Investment horizon Medium to Long-term investment Risk tolerance Moderately Aggressive

Investment objective Growth

Based on her profile, a portfolios of investments will be built as follows:

Sandy needs the money for the future college so she wants to have higher return and take low or

Furthermore, she could save her money by purchasing high yield bonds with 30% of her capital which bring her a stable income for her expenditure when she study In addition, she can take some risk by investing 10% in small-cap equity

3.3 Explain the functions of financial advisers and how to select one

In order to make the investment become more effective, the investors like Peter, Michael and Sandy should find the help from the financial advisers Financial advisers: A person or organization employed by an individual or mutual fund to manage assets or provide investment advice (InvestorWords, 2013) There are several useful functions of a financial adviser which Peter, Michael and Sandy should know like:

 Explain to individuals and groups details of financial assistance available to college and university students, such as loans, grants, and scholarships

 Research and investigate available investment opportunities to determine whether they fit into financial plans

 Analyze financial information obtained from clients to determine strategies for meeting clients' financial objectives (CareerPlaner, 2013)

In addition, there are some different types of financial advisers as follows:

Peter’s need for investment is to prepare for his retirement and actually he has small savings so he should chose a multi-tied advisers Firstly, the fee for a multi-tied adviser is not expensive Additionally, Peter only needs come to organizations like banks to find out their financial products which meet his requirements

While, Michael and Sandy with the similar need is growth Therefore, both of them should select

an IFA An IFA can evaluate the financial situation of Michael and Sandy by face-to-face interviews Furthermore, the IFAs also conduct the researches about the products which investors may invest in order to inform Michael and Sandy their returns and risks Besides, the IFAs also provide helpful recommendations

According to Hugepages websites, 2013, several questions which investors – Peter, Michael and Sandy could use to investigate the quality of a financial adviser:

 Enquire about experience: Ask him questions to find out how long he or she has been in practice as a financial advisor and with what types of companies

 Enquire the qualification: A certified financial planner or practitioner (CFP), a Certified Public Accountant/ Personal Financial Specialist (CPA/PFS), or a Chartered Financial Consultant (ChFC) certifications that your financial advisor should carry

 Clarify payment terms: Financial advisors may be paid by way of a fixed salary, a commission, or a fee based on agreed upon hourly rate, a flat rate, or a percentage of assets and/or income

3.4 Explain investors’ rights and the protection available to them

All investors – Peter, Michael and Sandy will be under the four levels of protections:

 Protection from wayward financial services professionals

 Regulation markets

 Regulation of companies

 Self-protection

(Arnold, 2010)

1 Protection from wayward financial services professionals

‘At the center of UK investor protection is the watchdog, the Financial Service Authority The FSA is described as a ‘super-regulator’ because it regulates so many different aspects of the financial system from stockbrokers, banks and stock markets to independent financial advisers.’ (Arnold, 2010) It means that all people those use the financial services in UK will be protected by FSA This regulation is applied to make sure the financial system stable, eliminate the fraudulent transactions

In addition, ‘all firms or individuals offering financial advice, products or service in the UK must

be authorized by the FSA’ (Arnold, 2010) Therefore, investors could have a general view to evaluate the suppliers of financial products

2 Regulation market

‘The FSA also conducts market surveillance and monitors transactions on seven recognized investment exchanges (RIEs)’ (Arnold, 2010) These regulations are working together to ensure all people, processes in stock exchanges follow the rules

‘The London Stock Exchange, in the partnership with FSA, also requires companies to disseminate all information that could significantly affect their share prices.’ (Arnold, 2010) This makes investors become more confident and believe that all companies on the stock exchanges are playing fair

4 Self-protection

There are some tips for the investors to be protect themselves and their assets when investing:

 If you want to cover under the FAS rules and compensation scheme, make sure the financial service company is authorized

 Make sure you understand the risks of the underlying investment

 Make sure that your broker or independent financial adviser ring-fences your money – separates it from their own – so if they do go bust your money is safe (Arnold, 2010) Investors like Peter, Michael and Sandy also have sever rights:

 Making complaints and taking compensations of their loss because of the authorized companies

 Voting

 Receiving information about the performance of the organization

 Receiving dividend

4.1 Explain the information in the financial pages of The Financial Times

‘The Financial Times (FT) is one of the world’s leading business news and information organizations We’re recognized globally for our authority, integrity and accuracy We provide a broad range of essential services, including news, comment, data and analysis, to the growing audience of internationally minded business people.’ (Financial Times, 2013)

In the first article - “Take advantage of false fear, they create future demand’, this title provides audiences a general view about financial situation which involve to the development of shares in the world There is an increase in global demand in different industries Firstly, the author mentions about the raise of the passenger air traffic especially in some emerging markets Furthermore, he also affirm that the reasons for these air travels is not for holiday or vacation After witnessing a terrible crisis, the financial world becomes weakly, so companies do not waste their money for staffs taking the trips All of these travels is for business purposes like sales meetings Companies recognize the business opportunities in the emerging markets and they want to take the chances to growth their business and get more income in the future Next, the author talks about the decrease

on inventories This sign can bring both positive and negative views for investors about the financial market However, there is a positive news about the development of retailing industry and the global demand for goods because of the increase in sales and more production Finally, the author indicates the world economy is raising considerably by showing the power consumption and intermodal production transportation in leading economic This means that actually the

in the world to the audiences and recommend them should get rid of fears and buy shares now As

a result, investors can get high return in the future

In the second article - “UK investment intentions at six-year high”, FT reporter advance the specific proofs about the higher investment of three UK organizations including SFL, Fracino and Delcam This sign shows the demand of consumers are increasing and this is a good time to buy shares and have high expectation on return However, investors need to consider the financial situation carefully although the demand has increased According to Carl Arntzen, manager of director of Worcester Bosch, the UK’s largest household boiler marker, investors have to evaluate the sustainable development of these demands in the future by comparing to the first-six-month results in 2014

In my opinion, based on the positive news in global demand like increase in passenger air traffic, decrease in inventories, higher power consumption,…investors should buy share to take more chances get higher return in the future because of the development of the companies These developments are be shown through the plans about investing more in plants and machinery of several big companies in UK It means that the share price of these organizations could go up However, the investors need to observe the performance of the organizations in the half of 2014

to consider the fluctuation of shares’ price By doing it, the investors can make the reasonable decisions about selling or buying shares to maximum the return and reduce the risk as much as possible

4.2 Calculate stock exchange ratios and be able to explain what they mean

There are several useful stock exchange ratios which help investors make decisions Based on the data of BIX Company in 2012, all the stock exchange ratios will be calculated

1 Earnings per share (EPS): is a measure of a company's profit Take the profit, subtract the dividends and divide that number by the number of shares outstanding (Parker, 2012)

The formula:

ℎ

(Biedenweg, 2002)