1. Investing in the securities market has several advantages and disadvantages. The major advantage of investing in securities is the high returns that one can expect from the investment. Compared to other assets, securities offer the highest returns. Its major drawback however is the high risk related to it. Prices of securities are very volatile. Right timing, research and knowledge about the stock are very important. By investing in securities, one is able to diversify his portfolio through the purchase of stocks in different industries. With diversification, the risks are spread out. On the other hand, this type of investment involves a long recovery time. It may also prove to be time-consuming since one has to do a lot of research to determine the right portfolio of stocks. Right now, one does not think that investing in securities is appropriate because of the little amount of savings one has. Since this is a very risky investment, one would rather invest in safer assets that earn little interest.
2. Compare and contrast the potential benefits of the domestic securities market to those investing in the foreign securities markets. Provide specific examples to support your response.
Investing in domestic securities will help fuel domestic economic growth. The benefit of investing in domestic securities is that the investor will only be taxed once, unlike in foreign securities where the investment is taxed both in the investment’s country and in the home country of the investor. A major benefit of investing in foreign securities is that some foreign markets outperform domestic securities market. This is evident in the case of the U.S. market where it was outperformed by Asian markets due to the financial crisis it experienced. A main concern of investing in foreign securities market is the foreign currency exchange rates which may either work positively or negatively for the investor.
3. Currently, one’s comfort level to exposure to risk is on the low side. If investments offer high returns but the risks are high too, one would not consider it. One’s rationale for this investment decision is that one’s savings is not much. One can be described as a highly risk-averse person; therefore, would rather invest in time deposits which offer lower returns but have minimal risks. Presently, the U.S. economy is still on a crisis. One does not know yet what the trend will be in the securities or bond market. It is better to have a wait and see attitude at the moment.
4.The biggest ethical concern about offering advice to other people with regards to investing their money is the guilt that one may feel in case the investment does not prove to be profitable. Another ethical concern that one considers is the type of company where the investment will be placed. It is important that the company does business in an ethical way. It should be environment-friendly and must be socially responsible. One does not consider companies that practice child labor or destroy the environment as worthy investments. Investors look into these things; thus, if a company does not meet these standards, the market for their stocks may be minimal compared to those that do business ethically.
Investopedia.com. (2012). Series 7 Study guide. Retrieved from investopedia.com: http://www.investopedia.com/exam-guide/series-7/investment-risk-tax-considerations/foreign-securities-taxation.asp#axzz2CkdWCyu6
Romano, L. (n.d.). Pros and cons of the stock market. Retrieved from ehow.com: http://www.ehow.com/facts_5533695_pros-cons-stock-market.html