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Essay on Investing Strategy

Investment Plan Objectives

The primary purpose of this investing strategy is to assist the client, a 32-year-old grocery shop manager, in realizing his dream of retiring comfortably at age 60. The customer wants to have four decades of funded income and retire on 80% of his pre-retirement salary. He also wants to be able to pay off his mortgage before retiring. The investing strategy will include asset classes, tax-sheltered retirement funds, regular evaluations, and rebalancing to meet these goals. The plan’s particular investment goals are as follows:

  1. Asset class diversification: By distributing assets over a variety of different asset classes, diversification, a core investment management philosophy, helps to reduce risk.
  2. Regular reviews and rebalancing: The portfolio will undergo regular examinations to ensure it is still diversified, consistent with the client’s risk tolerance and goals, and on track to achieve the desired return objective.
  3. Use of tax-sheltered retirement accounts: The plan will use non-tax-sheltered investments like individual retirement accounts (IRAs), taxable brokerage accounts, and tax-sheltered retirement accounts like the 401(k) plan provided by the client’s employer. This will make it possible for the portfolio to be flexible and not unduly reliant on any one kind of tax-sheltered account.

These goals and allocation must be evaluated and, if required, changed to the client’s risk tolerance, financial goals, and market conditions because the markets and the economy can vary. According to research, a diversified portfolio that includes a variety of asset types, including stocks and bonds, can help investors accomplish long-term financial objectives while minimizing risk (Zaimovic et al., 2021). Additionally, using tax-sheltered retirement funds can be a successful strategy for retirement savings. These accounts, like 401(k) plans and IRAs, offer tax advantages that can support the portfolio’s long-term development. 401(k) plans and IRAs own over $10 trillion in assets, according to the Investment Company Institute (Mitchell et al., 2022), demonstrating their popularity and efficiency as retirement savings vehicles.


The customer has mentioned that he expects to have his house paid off before he retires and that he is okay with taking on more risk at the beginning of his investment career. The client has also mentioned that he is okay with taking on more risk at the beginning of his investment career. A conclusion that can be drawn from the client’s statements is that they are willing to accept a moderate amount of risk. A moderate level of risk is advised with 28 years till retirement since it will provide the chance for more significant returns, which are necessary to meet the client’s income goals in retirement.

This client’s investment plan, prepared to accept a moderate risk, will contain methods for minimizing risk and maximizing possible rewards. They include:

  1. Market Risk: Market risk, sometimes referred to as systematic risk, is a risk that is present in every investment and is related to shifts in the general stock market (Anadu et al., 2020). Changes in interest rates, the state of the economy, and other variables can cause changes in the stock market. To reduce market risk, the portfolio will be diversified across several asset classes, including stocks, bonds, REITs, and cash.
  2. Credit Risk: The possibility of a borrower defaulting on a loan or bond is known as credit risk. This risk is significant for fixed-income assets like bonds, where credit risk might arise from a sovereign, corporate, municipal, etc. The portfolio will have a mix of short-, intermediate-, and long-term bonds to reduce credit risk. Long-term bonds may undergo more severe price changes owing to credit risk, whereas short-term bonds are less influenced by credit risk.
  3. Interest Rate Risk: Interest rate risk is the chance that if interest rates rise, the value of a bond or bond fund will decline. Existing bonds lose value when interest rates increase. The portfolio will contain a combination of short-, intermediate-, and long-term bonds, as discussed before, to reduce interest rate risk. This will assist in maintaining the portfolio’s value when interest rates change.
  4. Currency risks: The risk that changes in currency exchange rates may cause an investment’s value to alter is known as currency risk. The portfolio will contain international securities; thus, there will be currency risk. This can be reduced by utilizing currency-hedged ETFs or adding currency-hedging measures, which can lessen the effect of currency changes on the portfolio’s performance (Anadu et al., 2020).
  5. Risk of Inflation: Inflation may reduce an investor’s buying power. The portfolio will contain assets with the potential for growth, such as stocks and real estate investment trusts (REITs), which can provide returns that outperform inflation to reduce inflation risk.

Time Horizon

The client has a time horizon of 28 years until retirement. This is a long-term investment horizon, which allows for a higher allocation to equities, which have the potential for higher returns over the long term. The plan will also consider a medium-term time horizon of 5-10 years to include an allocation of intermediate-term bonds and other fixed-income securities to provide portfolio stability and income.

Asset Allocation

The asset allocation for the portfolio will be as follows:

  • Equities: 60% – Most of the portfolio will be allocated to equities, as they have the potential for higher returns over the long term. This allocation will be diversified between domestic and international stocks, focusing on index and exchange-traded funds (ETFs) to provide broad market exposure.
  • Bonds: 20% – A significant portion of the portfolio will be allocated to bonds and other fixed-income securities. This allocation will provide stability and income to the portfolio while also helping to mitigate the risk of a downturn in the equity market. This allocation can be made of a mix of short, intermediate and long-term bonds to help preserve the portfolio’s value as interest rates fluctuate.
  • Real Estate Investment Trusts (REITs): 10% – A small allocation to REITs will provide exposure to the real estate market, which has the potential for higher returns and diversification benefits.
  • Cash: 10% – A small allocation to cash will provide liquidity for the portfolio, allowing for flexibility in the event of unexpected expenses or opportunities.

Analysis and Implications

As a financial adviser, it is critical to consider any consequences and dangers that can influence the client’s investment portfolio. The possible influence of changes in monetary and regulatory policies on the portfolio’s performance is one of the crucial factors to consider. In this section, we will go through some of the critical areas of analysis and ramifications that should be considered while creating an investment strategy.

Economical variables: The economy has a significant impact on how investments perform since changes in the gross domestic product (GDP), inflation, and interest rates all affect the price of stocks and bonds (Huawei, 2022). For instance, a recession may result in lower corporate earnings and slower economic development, which may harm the stock market, while inflation may cause bonds’ value to decline. As a result, it is crucial to keep an eye on economic indicators and be ready to adjust the portfolio as needed to safeguard the client’s interests.

Interest rates: Because they affect the performance of both bonds and stocks, interest rates are crucial. Bond prices typically decline when interest rates increase, and equities may also be impacted if higher borrowing costs for corporations impact their earnings and dividends. As a result, it is crucial to keep an eye on interest rate developments and be ready to adjust the portfolio as needed to safeguard the client’s money.

The activities taken by central banks, such as the Federal Reserve, to manage the money supply and interest rates in an economy are referred to as monetary policy. Monetary policy modifications may substantially affect the economy as a whole, the stock and bond markets, and other financial markets. The Federal Reserve may choose to reduce interest rates to promote economic expansion, which might be advantageous for the stock market but also result in inflation and negatively impact bonds.

Tax rules and regulations: Tax laws and regulations can significantly affect a portfolio of investments. Alterations to the tax legislation may influence how various investment kinds are taxed and the client’s overall tax obligation. New rules and legislation may also impact the investing environment, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (Huawei, 2022).

International elements: The success of an investment portfolio can also be impacted by global variables, including political developments, trade regulations, currency changes, and economic situations in other nations. A shift in the dollar’s value against other currencies may affect the profits from investments made in foreign markets (Huawei, 2022). Similar to how a trade conflict between two nations might affect international markets, the portfolio’s performance as a whole may be affected.

In conclusion, financial advisers must consider these considerations when creating an investing strategy. A thorough examination of the portfolio is included to reduce potential adverse risks and increase profits. The adviser should monitor the market and legislative developments and make required modifications. Additionally, giving the client a detailed explanation of their investment portfolio’s potential risks and repercussions will enable them to make better-educated choices and foster a long-lasting relationship of trust.


Anadu, K., Kruttli, M., McCabe, P., & Osambela, E. (2020). The shift from active to passive investing: Risks to financial stability? Financial Analysts Journal76(4), 23-39.

Huawei, T. (2022). Does gross domestic product, inflation, total investment, and exchange rate matter in natural resources commodity prices volatility: resources Policy79, 103013.

Mitchell, O. S., & Utkus, S. P. (2022). Target-date funds and portfolio choice in 401 (k) plans. Journal of Pension Economics & Finance21(4), 519-536.

Zaimovic, A., Omanovic, A., & Arnaut-Berilo, A. (2021). How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature. Journal of Risk and Financial Management14(11), 551.


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