Portfolio Investment –Risk Assessment and Management

Outline For discussion

 Introduction
Type of Investment
Investment Outlets
Risk Assessment
Highlight of Risk Assessment.
Risk Management
Conclusion/Take Away
Thanks
Questions
 Introduction

Portfolio Investment is a term used to describe collection of

valuable investment products, strategy, plans and procedure
among other dimension to investment management necessary to
ensure and create future wealth, provide measurable realization
of objectives in any dimension of both quantitative and
qualitative indicators.

The future of any individual, house hold, Corporate

establishment, government institutions among other category
would depend largely on the success and quality of investment
decision taken in the past and the present which could
presumably bear relationship with the future development.
Investment is a process and as such would require thorough
planning, due diligence and decisive action to enforce the
feasibility, viability and achievability of the goals, and proposed
objectives.
“Investment is a plan; often boring, dull and mechanical process
of guaranteeing success in human endeavour and ultimately
getting rich”

It is also a deliberate plan or quite unconscious and organized

plan to attain future benefit by an act of delayed gratification,
postponed consumption, taking decisive steps to reduce or
eliminate risks by embracing financial education among other
forms of education, right mindset of an entrepreneur , winning
attitude of an investor and above all right timing and focus as
well enabling framework and environment to deliver the success
 Type of Investments.

Investment manifests in different forms, shades, dimensions and

scenarios. Regardless of whether it is statutorily demanded or
required, persuasively or encouraged, voluntarily, collaboratively
or in syndicated fashion and responding to the global trends
among other development, Investment can be categorized into the
followings:

Owned Business/Assets Investments.

Managed Assets/ Investments

Financial Assets/Securities Instruments Investment

Other Investments
Owned Business/Assets Investment consist of Investments in both
tangible and intellectual assets necessary for businesses to deliver
superior quality goods and services as well as providing valuable
response to needs of various stakeholders as a mark of corporate
responsibility to its,environment,community, industry and the entire
country as a step to entry to the international scene or arena.

This includes investments in Plant, Machinery, Furniture, Motor Cars,

Computers Systems, Business Inputs/ Raw Materials, Work in Process,
finished good,) Mergers & Acquisition, Start ups Loans and Venture
capitalist, Patent right and trade mark among other intellectual
properties.

Managed Assets/Investments consist of those professional Service for

either Assets or fund management on behalf of clients or in which they
are statutorily put in a fiduciary relationship or in a trustee capacity.
This could stem from the traditional concept of ensuring safety and
preserving items of treasures and valuables such as gold, diamond,
poultry management, animal rearing or fattening business, rare coins,
work of art, and antiques to the more modern and sophisticated
business world of mutual funds, unit trust, pension fund contributions,
various retirement plans, financial services and investment products,
real estate brokers, facility and logistics managers and other
instruments of growth fund. The challenge here is the issues of
trust and sincerity of purpose to gain popularity and acceptance.

Financial Assets/Securities Instrument investments: This is one

of the fastest growing investments arena in the world as of now.
In fact, the momentum and the projections into the near future
coupled with the current returns to the investors has given this
type of investment a franchise of great economic value, benefits
and global contemporary discussion in the world’s financial
superhighways.

However, financial education among other multi-disciplinary

knowledge is required to tap into the fortune and brighter
prospects of this type of investment.

This investment type includes, Shares and Bonds (of different

forms), Financial Derivatives (options, warranties, futures,),
Commodities, Foreign Exchanges Deals, Hedge Funds, Private
Placements e.t.c
Other Investments include such nature of Economic and Social
benefits like Sub-Prime Financing, Education Funding,
Foundations and Research, Hospitality, Recreation, Holiday
vacation, Tourist attractions and other memorable events and
heritages.
 Investment Outlets

Money Markets and Short term Investment.

Capital Markets and Long Term Investment

Hybrid

Money Markets and Short term Investments includes those

investments into the financial products ,services and instruments
whose tenor or maturity is not more than one year or can be
discharged or terminated on demand or at short notice not
exceeding 7 seven days or can be exchanged for value because of
its liquidity,negotiability,acceptability,convertibility and collaterised
feature.

This includes Deposits in Current Accounts, Saving Accounts, Call

Accounts, Fixed Deposits, Treasury Bills and Certificates, Bankers
Acceptances, Commercial Paper (If any), and other cash drawing
facilities.
Capital Market and long term Investment includes those investments
that are strongly recommended for a value based investors and for
which the benefits over a long term far exceeds the short term gains
among other wealth created in the course of investing based on the
education, hands on experience and the fix it capacity building of
the investor.

Instruments/Securities such as Shares, Bonds, Derivatives, Real

Estate Business, Commodities e.t.c qualifies for this line of
investment

Hybrid is a combination of Short and Long term investment on

which trading, roll-over and exercise of alternatives is applied. Most
Money and Capital Market Instruments and Securities by implication
can be traded upon.
 Risk Assessment

Investment as said earlier is a Plan for getting rich or creating wealth. Any
assessment or consideration should as a matter of seriousness have a
basis. Other wise, it would be a scenario of someone in struggling, denial
and impulsive situation.

Assessment of any investment portfolio should begin with an individual

design of what the future should look like bearing in mind the situation of
the past and the challenge of today. As objectives and goals differs, it is
important to stress that approaches) resulting into what works for one
person may not fit into the working strategy of another person .Hence
issues like objectives for investing, risk and return trade off and
relationship, risk tolerance of an investors, and risks attitude.

In effect, SWOT (strength, weakness, opportunities and threats) analysis

on an enterprise wide risk assessment and management is an integral
part of minimizing risk in investing process.
It is there fore important to replicate what Roger Sorenson aptly
described as Yourself & Investing in the course of risk assessment
of any investment portfolio.

Yourself & Investing

By Roger Sorensen

Everyone has heard the mantra in recent years that you must have a
portfolio of investments in order to live out quality retirement years.
Before you start throwing money at every stock and bond you see, or
especially if you already have started doing that, you need to have a little
Q&A time with yourself.

Spending some time with a fee-only financial planner is always a good

idea. As your life changes the things you need to know and understand
about yourself will change as well. Children, grandchildren, divorce,
death, business opportunities will affect your investments. By
understanding the following things about yourself first, you will be started
on the way to building a great investment portfolio:
· Income – how much investing can you afford each pay period
· Financial needs – what is your liquidity needs, is the investment for
college funds, what tax bracket are you in now, etc.
· Existing insurance coverage – would a term policy be a smart choice, or
would a variable annuity be better, do you even have disability insurance
· Age – should you involve another family member in these investment
decisions
· Goals – what ambitions do you have for your investment portfolio, and
your life
· Credit standing – how is your credit score and history, are there problems
you need to clean up at this time

By knowing these basics will help you build the correct investing strategy for
you and make sure that you consider all the important points when making
investment decisions.

Good Assessment would be enhanced by correct understanding of above

and any other emerging issues particularly in the light of economic cycles of
a business world.
However, a more Business like assessment will include the followings
· Assets versus liabilities of a client. This means taking a look at the bottom line.
Oftentimes it's advisable for clients to take care of high interest rate debts
before investing in stocks, bonds, real estate and other assets. These can be
rolled into one loan and paid off quickly or otherwise paid off, but too many
debts can sideline an investment plan.
· Personal goals of the client. Whether the client has 10 percent of their income
to dedicate to investments or 50 percent, the goals of those investments must
be reasonable and clearly defined. Goals can include money for retirement, a
new home, a second home or just a more secure financial future.
· Amount of time allotted. If a person has 30 years until retirement, the strategy
will be much different than a person with 10. The time involved will help
determine if high risk, high return plans are more in order or if safer, lower
return buys are the smart route to take.
· Type of diversification desired. It's never a good idea to put all of a person's
eggs in one basket. Whether it's a combination of stocks and bonds or real
estate and mutual funds, a client's wishes should always be taken into
consideration.
 Purchases, too, must be assessed to make sure they meet the client's
investment strategy. Some buys are more risky than others, but if high
returns are desired they might be the way to go. Others are slow and steady,
but almost always guarantee a favorable rate of return.

The best place to start when making an assessment of finances is unique

with the person and his or her goals. These must be clearly defined for a plan
to be put in place that makes sense. Assets must be looked at as well along
with income available to dedicate toward investing. Unless the entire picture
is drawn out, the investment strategy runs the risk of not producing the
desired results. Assessment solutions are key in any successful plan.

Highlight of risk assessment

The issues of risks factors are worth considering in investing process
necessary for arriving at an effective investment decision. These visible risks
can come into play in any or more stated below

Personal Risks

This risk deals with the personal level of investing. The investor is likely to
have more control over this type of risk compared to others.
Timing Risk: You buy the right security at the wrong time or selling the
right security at the wrong time. There is no surefire way to time the
market though many have tried.

Tenure Risk: This is the risk of losing money while holding onto a
security as its value decreases.

Company Risks : The risk of an enterprise consequences of

decision making with respect to business models and strategy

Financial Risk: This is the danger that a corporation will not be able to
repay its debts. This has a great affect on its bonds, which finance the
company's assets. The more assets financed by debts (i.e., bonds and
money market instruments), the larger the risk of default. Studying
financial risk involves looking at a company's management, its
leadership style, and its credit history.

Management Risk: This is the risk that a company's management team

may run the company so poorly that it is unable to grow in value or pay
dividends to its shareholders. This greatly affects the value of its stock
and the attractiveness of all the securities it issues to investors.
Market Risks

Fluctuation in the market may be caused by any or all of the following resulting
in market risks above

Market Risk: This is the chance that the entire market will decline, thus
affecting the prices and values of securities. Market risk is influenced by
outside factors such as embargoes and interest rate changes.

Liquidity Risk: This is the risk that an investment will experience loss in value
when converted to cash.

Interest Rate Risk: This is the risk interest rates will rise resulting in an
investment's loss of value due volatility in the market not addressed or
appreciated by the investor due to his low level of investment and market
confidence .

Inflation Risk: This is the danger that the dollars you invest will buy less in the
future because prices of consumer goods rise. When the rate of inflation rises,
investments have less purchasing power. Investments earning fixed rates of
return are especially vulnerable to this loss.
Exchange Rate Risk: This is the chance that a nation's currency will lose
value when exchanged for foreign currencies.

Re-investment Risk: This is the danger that reinvested money will earn
returns lower than those earned before reinvestment. Dividend-
reinvestment plans are a group subject to this risk. Bondholders are
another.

National and International Risks

National and world events can dramatically affect investment markets.

Economic Risk: This is the danger that the economy as a whole will
perform poorly. Economic downturn stock prices, the job market, and the
prices of consumer products.
Industry Risk: This is the chance that a specific industry will perform poorly.
Problems in an industry affect the individual businesses involved as well as the
securities issued by those businesses. This may also spill over to another
industry with which there is either a linkage or relationships.
Tax Risk: This is the danger that rising taxes will make investing less
attractive. Businesses that are taxed heavily have less money available for
research, expansion, or dividend payments. Taxes can also be levied on
capital gains, dividends and interest earned by the investor.

Political Risk: This is the danger that government legislation will have an
adverse affect on investment. This can be high taxes, prohibitive licensing, or
the appointment of individuals whose policies interfere with investment growth.
Political risks include wars, changes in government leadership, and politically
motivated embargoes.
 Risk Management
Risk Management is an Enterprise wide risk assessment, analysis,
appraisal and control in creating wealth and delivering superior value to
both Business and other stakeholders as demonstrated in quantitative and
qualitative measures.

It also focuses on dimensions to contingencies or unforeseen development

in Business processes, review and re-alignment.Moreso, it incorporate
risks which are mostly described as invisible risk as follows:

Inflation
Conservatism
Asset Allocation.

Risk management entails establishing a process by which issues and

challenges are addressed and converting adversities and challenges into
intellectual properties and in turn to business opportunities.

The message of Roger Sorensen in the final analysis is as meaningful as

the words of King Solomon in the Holy Bible. However; the message is
titled Successful Investing
 Successful Investing
By Roger Sorensen

When it comes to investing, there are some simple rules that you can use as
general guidelines to help you make better decisions in your investments.
While it is important to look at the specific circumstances relating to you and
your money, as a general guideline these "7 Rules of Successful Investing"
will apply to most people, most of the time. Understanding these basic
concepts are an important foundations to rely upon to ensure a good
investment strategy.

1. The higher the investment returns, the higher the risks involved with the
investment — this is true virtually 100% of the time. If an investment seems
too good to be true, it probably is. So, be very careful and keep a level head.

2. Diversification of your investments across a broad spectrum is usually a

good investment strategy. Moreso,Avoid too much diversification. It is
important to Concentrate on Plans,procedure,Investment products or
instruments that deliver quality value at no or very negligible risk
3. it’s important to be patient and stick to your plan. Refer to rules #1 and
#2 if you begin to feel impatient and want to try and make a quick buck.

4. When investing, your emotions are usually your greatest enemy and
can easily derail you from your long-term investment plan if you're not
careful. Don’t succumb to fear when the market is dropping and don’t
become greedy when prices are rising.

5. Consult with your investment advisor, but do not rely on your

investment advisor 100%. It's important to be honest about your
investment concerns and to ask questions of your investment advisor to
get opinions and information that you may not have considered yourself,
but ultimately you should be the one to make your own financial
decisions. Only you are responsible for all financial decisions made.

6. Don't invest in things you don't fully understand. Always and carefully
read the prospectus. If you can't understand the risks, costs and liquidity
of the investments, do not make it until you do. If you can't understand an
investment fully, get help and do more research until you do.
7. You need to make a clear investing goals. It's important to take in your
personal and/ or corporate factors when making these goals. You need to
know
· Your current resources that you can put toward investments
· Your investment risk tolerance
· The time horizon for the investments
· The ultimate investment goal you're trying to reach.

Design your investment plan taking into account all these factors as they
apply to you, monitor your results over time and make adjustments when
needed.
 In conclusion
Investment is a plan and as such a plan document such as Budget
should be in place. The Budget or projection would have the
following characteristics of both Personal and corporate wealth-
creation strategy based on specific goals. In Preparing Budget
emphasis of your goals should be:
Be realistic.
Establish time frames.
Devise and revise a plan.
Be flexible; goals can change.

Also, always have an imagination of a wining investor in your

mindset or mission and embrace financial education among other
multi-disciplinary business dimension.

As a Final note of emphasis “PLEASE DON’T ALWAYS FORGET

THAT YOU MUST KEEP LEARNING EVEN WHEN YOU ARE
OVER SHADOW BY AN ALL ROUND SUCCESSES”

Thank you for your time, and attention