Business Investment Proposals: Overall Investment Assessment Answer

The overall evaluation of different types of investment proposals, which could be presented to Mr. X, might eventually help in identifying the best possible investment opportunity. In addition, the overall investment, which could be used by Mr. X, can be further evaluated. Mr. X has agreed to allocate fund of SGD 1.3 million to ENBL, which might help in improving its overall return from investment and support his future endeavors.

From attending the dinner presentation, conducted by AHPL the following information was collected by Mr. X.

• When the first option for investment is considered then the return over two year period would be 24%. Therefore, the annual return can be considered 12%. The investor Anson Home Pte Ltd would be making investment in a well-established German firm. APL has tied with German firm and it has the history of providing good returns for more than the periods of eight years.

Merits of investing:

The Anson Ltd is offering higher rate of return of 24% within a shorter span of time. There are no uncertainties in the German market and the investor would not face any real estate risks. The investor would also be fully covered under the insurance coverage policy. Mr. X can be sure of the return except for the unseen or unhappening contingencies that may arise in the economy of the Germany. 

Demerits of investing:

It is known that the return from any investment is not free from risks. The expected return from Anson Ltd is not guaranteed. The return is also affected by several other factors such as political risks and the political situation of any country can change instantly.

With the help of this information, Mr. X is keen on investing in opportunities, which provide a insurance covering and high return. In addition, the merits and demerits of investing in German firms the following could be concluded.

• In addition, the investment opportunity is lucrative and could provide the required return, which is needed by Mr. X to support his future endeavors.
• However, the investment opportunity mainly depicts high returns, which could be enjoyed by Mr. X on a single portfolio. Moreover, the overall investment in single German firm might increase the risk exposure of the portfolio, which in turn might reduce return from investment.
• In addition, the overall opportunity could help Mr. X generate around 0.156 million in 1st year. This projected income from investment could eventually help Mr. X to generate the required return from investment.
• Moreover, the main limitation of investment is that the overall inflation of Singapore mainly rises at 3% per annum, which might negatively affect the yearly income generated from investment.

Investment in Anson Home Pte Ltd and Everstrong National Bank Ltd could only provide return from investment but also increase the relative risks. The options to invest in the given options and it depend on the tendency or nature of the investor making the investment (Baker & Ricciardi 2014). Furthermore, the overall portfolio division, which is suggested by ENBL, is as follows.

Local stocks= 65% Bonds = 15% Foreign stock = 15% Cash and foreign currencies equivalent= 5%

The allocation of asset as per the above proposition of the investment option Asset allocation for Mr. X, as advised by Mr. Billy = (.65*1.3 + .15*1.3 + .15*1.3 + .05*1.3) = ( .845 + .195 + .195 + .65 )

Table 1: Depicting the portfolio construction of Mr. X

(Source: As mentioned in the case study)

Moreover, the suggested portfolio management mainly portrays the overall return generation, which might be generated for Mr. X by financial advisors in ENBL.

Local stocks= 20% Bonds = 10% Foreign stock = 45% Foreign Fixed interest rate bonds = 20% Cash and foreign currencies equivalent= 5%

The allocation of asset as per the above proposition of the investment option Asset allocation for Mr. X, as advised by Mr. Billy = (.20*1.3 + .10*1.3 + .45*1.3 + .20*1.3 + .05*1.3) = ( .26 + .13 + .585 + .26 + 0.065 )

Table 2: Suggesting the portfolio construction of Mr. X

(Source: As created by the author)

In addition, with the help of table 2, the overall new portfolio could be effectively depicted for Mr. X, which might help in generating higher return from investment. In addition, the recommended investment opportunity might be helpful in improving profitability of Mr. X. Moreover, the suggested portfolio mainly depicts an increase in investment in foreign equities and fixed interest rate bonds, which might help Mr. X to generate higher revenue.

Figure 1: Comparing the return from investment

(Source: )

Figure 2: Comparing the return of S&P 500 index with Emerging market

(Source: )

In addition, with the help of figure 1 and 2 the overall return, which could be generated from emerging market than investment in developed market could be effectively evaluated. In addition, the portfolio of MR. X could increase its exposure in foreign emerging market equities to get a higher return from investment. Moreover, the overall risk that might be generated from equity investment could be effectively decreased from investment in interest rate bonds. These adjusted risk exposure to the portfolio might mainly increase the overall profitability from investment and reduce investment risk. Baker & Ricciardi (2014) mentioned that with the help of effective portfolio analysis the overall risk from investment could be decreased, which in turn might help in generating the required return from investment  On the other hand, Bergin and Pyun (2016) criticizes that during an economic crisis the overall investment analysis might lose its friction and hamper capital of the investor.

In addition, it is financially rewarding to make an investment in other economy and buying in the company, which might provide with the boost required to achieve the financial goals. There are a lot of risks and uncertainties involved in investing in foreign company. However, investing in a bank would be safer as it is guaranteed by the authorized body and mainly because it is making an investment in the diversified portfolio. Mr. X would be recommended to make his available fund to invest in Ever strong National Bank Ltd. however, the rate of return is not as high in the prior option but the return is expected to grow on an average of 7%-12%. There are risks involved in making such investment but it is lesser than making investment in Anson Ltd. This is because , the risk associated with making investment with the national bank can be mitigated by implementing the tool of asset allocation where the proportion of money invested in a particular securities is altered as per the performance of the stocks in the portfolio. The risk can also be mitigated and the return is maximized by building the portfolio of such assets whose return is not correlated. When the portfolio is not generating good return, then it can be rebalanced by including and excluding the assets, which is affecting the performance of the portfolio.

Reference and Bibliography:

Baker, H. K., & Ricciardi, V. (2014). Investor behavior: The psychology of financial planning and investing. John Wiley & Sons.

Bergin, P. R., & Pyun, J. H. (2016). International portfolio diversification and multilateral effects of correlations. Journal of International Money and Finance, 62, 52-71.

Cumming, D., Helge Haß, L., & Schweizer, D. (2014). Strategic asset allocation and the role of alternative investments. European Financial Management, 20(3), 521-547.

Dolvin, S. D. (2016). Asset Allocation, Risk Tolerance and Shortfall Risk.

Hermes, N., & Lensink, R. (2013). Financial development and economic growth: theory and experiences from developing countries. Routledge.

Kashyap, A. (2014). Capital Allocating Decisions: Time Value of Money.Asian Journal of Management, 5(1), 106-110.

Shim, J. (2013). Bank capital buffer and portfolio risk: The influence of business cycle and revenue diversification. Journal of Banking & Finance,37(3), 761-772.

Treynor, J. L. (2016). Long-Term Investing. Financial Analysts Journal, 72(4), 7-10.