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Free Example of Financial Portfolio Essay

While investing, there is a number of factors to be considered failure to which the investor will not earn maximum returns from the designed investment. The science and art that is used by the person making the said investment in terms of mixing policies and investment objectives is referred to as portfolio management. The manager considers the duration of time intended to keep the portfolio whether long term or short term so as to minimize risk, maximize returns and balances the shares performance against risks.

I have USD 100,000 which will be used to purchase stocks as follows;

2000 shares in Nokia at the current price of 4.91 = USD. 9820

2000 shares Bank of America current price 12.07= USD 24140

1000 shares Wells Fargo current price of    36.60= USD 36500

2000 shares in Sprint Nextel current price of 5.88=USD 11760

2000 stocks in Boston Scientific price of 7.49 = USD 14980

69 stocks in BP at current price of 40.39 = USD 2787

Total USD 99987

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Calculating holding for each of the stock:

Nokia shares if sold when the price is USD.5.91 therefore holding is (5.91-4.91)/100 = 1%

Bank of America if sold when the price is 13.50, (13.50-12.07)/100=1.43%

Wells Fargo if sold at 38.0, (38.0-36.50)/100 = 1.5%

Sprint Nextel if sold at 6.0, (6.0-5.88)/100= 1.2%

Boston Scientific if sold at 10, (10-7.49)/100= 2.51%

BP if sold at 50, (50-40.39)/100= 9.61%

Just like in any other investment, the objective of this particular portfolio is to maximize gains in the short term by investing in different sectors. By having a diverse investment, the investor is cautioned from loss arising from a particular sector and thus a loss in the sector will be made good by a higher gain in the other sector that is doing well. There are some that are also held for speculative reasons such that immediately their prices shoot up as expected, they will be sold.

Economic Events Affecting Portfolio Value

Interest rate makes the cost of borrowing to go high. With high borrowing rates, very few investors will have the money to invest and therefore the demand for stocks will decline. Stock prices are determined by the market forces and thus a decline in demand will lead to decline in price subsequently the value of the investment.

A deeper recession is bad to a portfolio because all the gains that were gained during appreciation will be lost and even start trading at prices below the price the stocks were acquired at. At this time, the investor would not able to even recoup money invested suppose the portfolio is released or sold.

At a time when there is rapid inflation, the price of everything goes up continually and so will be the portfolio prices. However it is imperative to note that the value of the Dollar will be low therefore the gains that would have been experienced by increased portfolio price will be taken away by loss in value of the dollar. It is also important to note that when this goes on for some time, there will be fewer investors because their purchasing power is reduced by inflation and therefore the demand for stocks will decline and so will the value of the portfolio.

A weak dollar can be a cause of domestic inflation resulting from high import prices. Investors at this point will demand higher returns to compensate for inflation and at the end of the day interest rates will go high and this discourages investments in bonds. When the dollar value depreciates, exporters and manufacturers in the US become more competitive in terms of prices in overseas trading and this increases profits. Increased profit attracts more investors and as demand increases stock prices increases so will the value of the portfolio.

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