Part II Now That You Have Identified Your Risk Tolerance

Part Ii Now That You Have Identified Your Risk Tolerance You Are Go

Part II - Now that you have identified your risk tolerance, you are going to develop your own personal investment strategy that will serve as the introduction to your final project submission. In one page, you are to design your own personal investment policy. In the policy summary, be sure to identify the following main points: Reserve Funds based on your monthly expenses Risk Tolerance Suitable Investments based on Risk Profile - (Focus on Investment Type, not specific investments) Hint: Suitable investments to meet asset preservation are savings accounts, money markets, time deposits) Investment Time Horizon Use APA Format Steps to investing: 1) Meet investment prerequisites: make sure you have taken care of basic needs such as: food, shelter, clothing, and have cash reserves available for emergencies (Smart, Gitman, & Joehnnk, 2017, p.14). 2) Establish investment goals to direct you towards the correct type of investments to make to: (a) accumulate retirement funds, (b) enhance income, (c) save for major expenditures, and (d) shelter income from taxes (Smart, Gitman, & Joehnnk, 2017, p.14). 3) Adopt an investment plan: once you have established your goals create a written plan that includes time frames and risk levels you are willing to take (Smart, Gitman, & Joehnnk, 2017, p.15). 4) Evaluate your investments by assessing the risk and return potential, this topic will be studied further in the e-textbook (Smart, Gitman, & Joehnnk, 2017, p.15). 5) Select suitable investments after you complete due diligence and determine how much risk you are willing to take (Smart, Gitman, & Joehnnk, 2017, p.15). 6) Construct a diversified portfolio to avoid putting all of your eggs in one basket; you will be able to earn higher rates of return while reducing risk through diversification (Smart, Gitman, & Joehnnk, 2017). 7) Manage the portfolio of investments to make sure the actual performance is close to the expected performance or rebalance your portfolio if needed (Smart, Gitman, & Joehnnk, 2017).

Paper For Above instruction

Developing a comprehensive personal investment policy requires a careful assessment of one’s financial situation, risk tolerance, and investment goals. This strategic framework serves as a guiding document to navigate investment decisions, aiming to balance risk and return effectively while aligning with individual financial aspirations and time horizons. In this paper, I will outline my personal investment policy based on my current risk tolerance, financial needs, and future objectives, incorporating the important steps and considerations outlined by Smart, Gitman, & Joehnnk (2017).

Reserve Funds and Monthly Expenses

A fundamental component of my investment policy involves establishing reserve funds proportional to my monthly expenses. According to Smart, Gitman, & Joehnnk (2017), maintaining liquid reserves equivalent to three to six months of living expenses provides a safety net against unforeseen financial shocks. Currently, my average monthly expenses—including rent, utilities, groceries, transportation, insurance, and miscellaneous costs—total approximately $3,000. Therefore, I aim to accumulate a liquid reserve of at least $9,000 to $18,000, depending on my anticipated needs and income stability, to buffer against emergencies and provide financial stability.

Risk Tolerance and Investment Profile

My risk tolerance is moderate, influenced by my age, income stability, and financial responsibilities. I am willing to accept some fluctuations in investment value for the potential of higher returns over the long term. This risk profile suggests that my investment choices should balance growth-oriented assets with preservation-focused instruments. Accordingly, I prefer a split of approximately 60% in growth-oriented investments, such as stocks or equity funds, and 40% in conservative, income-generating or preservation-oriented assets, such as bonds, savings accounts, and money market funds. This allocation aligns with my medium risk tolerance while aiming to preserve capital and generate steady income.

Suitable Investment Types Based on Risk Profile and Time Horizon

Considering my risk profile and investment horizon—estimated at 10 to 15 years for major financial goals—my suitable investment types include diversified mutual funds, exchange-traded funds (ETFs), bonds, and high-yield savings accounts. Savings accounts, money markets, and time deposits serve as asset preservation vehicles, providing liquidity and capital safety. For growth, I am inclined toward equities and stock index funds, which have historically delivered higher returns over the long-term. The mix ensures a balanced approach to risk management while allowing for appreciation aligned with my financial goals.

Investment Time Horizon

My investment time horizon of approximately 10 to 15 years influences my asset allocation strategy. Longer horizons allow for increased exposure to equities, which tend to be more volatile but offer higher growth potential. As I approach the end of this period, I plan to gradually shift towards more conservative investments, preserving capital and securing gains. This strategy enables me to capitalize on growth opportunities while minimizing risk in the later stages of my investment timeline.

Steps to Investing

Adhering to the systematic steps outlined by Smart, Gitman, & Joehnnk (2017), I first ensure that basic necessities are met, and an emergency fund is established before committing to long-term investments. Next, I set clear objectives, such as building retirement savings and generating additional income, which inform my investment choices. A detailed, written investment plan is then devised, specifying time frames and risk levels compatible with my goals. Continuous evaluation of my investments, considering risk-return dynamics, ensures alignment with my objectives. Conducting thorough due diligence, I select appropriate investment instruments and diversify my portfolio to mitigate risk effectively. Lastly, ongoing management involves periodic rebalancing to maintain desired asset allocations and adapt to changing market conditions.

Conclusion

In summary, my personal investment policy is designed to reflect my moderate risk tolerance, time horizon, and financial objectives. By maintaining adequate reserves, diversifying holdings, and following a disciplined investment process, I aim to optimize my financial growth while safeguarding against significant losses. This comprehensive approach provides a structured pathway toward achieving my long-term financial aspirations.

References

• Smart, S. B., Gitman, L. J., & Joehnk, M. (2017). Personal Finance (13th ed.). Pearson.
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