Risk and Diversification

Riskand Diversification

UniversityAffiliation

PreferredResults

Time horizon–3-5 years

Risk tolerance–Low

Flexibility–None at all

In a sell-off–Panic and sell

Explanation

The time horizonof 3-5 years is motivated by the expected short-term boom infinancial markets. In recent years, oil prices have plummeted torecord lows. Reduced oil prices have triggered an upscale infinancial markets. However, the markets are expected to downgrade toprevious levels once the oil prices increase in around five years’time. The time horizon also reflects the current expectation ofreceiving a hefty life insurance payout. Therefore, investmentcapital will be readily available.

The low risk tolerance shows the unpredictability of market trends. Astable interest rate creates a market state where investor confidenceis high. However, a variable interest rate can change the value ofinvestments momentarily (Lebowitz, Bova, &amp Hammond, 2010).Besides, the available investment capital is static. There are fewprospects of acquiring such a lump sum in the next five years.Therefore, the low risk profile also reflects the high value attachedto the capital. Inflexibility reflects an unwillingness to settle forfewer rewards than those anticipated within the next five years. Theshort time horizon, low risk profile, and zero flexibility all showthe sentimental value of the capital. Consequently, in a sell-off,the first reaction would be to panic and sell all assets. In thismanner, the risk factor is greatly reduced. Investment in bonds wouldbe the most profitable choice based on the preceding factors.

The passage inMatthew 25:14-30 highlights the importance of making wise and properinvestments. The slaves with five and two talents did more businessand doubled their investments. However, the slave with one talentneglected to make any investment. The reaction of the master upon hisarrival showed his approval for the astute slaves. On the other hand,the master dismissed the wicked and sluggish slave. Within thecurrent market conditions, Grammy’s legacy cannot operate and stillhonor God. Matthew 6:24 condemns the folly of pursuing riches anddivine favor concurrently. The existing market conditions placeemphasis on maximizing wealth. Proceeding with this option would meanignoring God and His requirements.

References

Leibowitz, M. L., Bova, A., &amp Hammond, B. P. (2010). Theendowment model of investing: Return, risk, and diversification.Hoboken, New Jersey: John Wiley &amp Sons.