Tag: government bonds

Japan’s Economy

Posted by Winflow – July 13, 2011

As Japan struggles to rebuild after the tsunami and earthquake it is becoming apparent that their economy is far from stable. The substandard GDP and costs to rebuild make getting the economy back up to world standards a difficult task.

What are the costs of rebuilding after a succession of natural disasters?

  • According to an article in the New York Times, the costs to rebuild the northeast region of Japan are so large that lawmakers are planning to double the national sales tax to 10 per cent.
  • Government estimates say rebuilding will cost as much as $312-billion.

Japan’s economy should not rely on debt financing to pay for the reconstruction costs because they have the highest level of public debt among advanced economies. It is likely that Japan will have to cut spending costs and raise taxes to keep up with interest payments.
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How to Analyze Investment Risk

Posted by WFG – June 22, 2011

If you’re working with investments you’ll know that risks vary, depending on the investment made. But you’ll understand that investment risk can be analyzed by using different parameters. The fundamentals of investment risk are easy to understand and will help you get started in the industry.

The first step is to seek the guidance of an investment professional. Even if you are a professional yourself, it doesn’t hurt to have a second opinion. If you are unsure consider the purchasing power of the cash investments. These can be treasury bills or government bonds. The purchasing power is the chance of future inflation and an advance on current rates.

Take the time to study before looking into the risk of unstable assets. When dealing with less established companies you could be onto a winner, but you’ll want to make sure before parting with money. Also take into account the interest rate risk associated with bonds, by working out the right time to invest, you may make more money.

While you may have made your first investment, that doesn’t mean you should sit back and wait. Follow the financial markets and study the investment risk involved with your assets. Risk will be determined by a number of factors and a changing market is always high on the list.

The Investment Risk Pyramid

Posted by WFG – June 22, 2011

Working out the investment risk of a portfolio is an important aspect of the job. It will help you to know your future plans and will change the strategy you have in place. But after deciding on the how much risk is acceptable you can move into using the risk pyramid. This will help balance your assets and gain more control.

The risk pyramid can be looked at as an asset allocation tool. It has three tiers and can help to diversify an investor’s portfolio.

  • The base of the pyramid represents the investments which support the items above. They should be low risk investments and have returns which are easily predicted. These include government bonds and money market/bank accounts.
  • The middle section of the pyramid will include the medium risk investments. These offer a stable return but will continue to allow for capital appreciation. They should be relatively safe, but riskier than those below. These include investments in real estate and equity mutual funds.
  • The highest point of the pyramid will contain the high risk investments. This is the smallest area of the pyramid and there should be less of these in the portfolio.

This layout is just an example and the risk pyramid should be customized to your preferences. Those with more interest in high risk investments can increase the summit of the pyramid, but should take away only enough below to cope with the risk.