WEALTH MANAGEMENT Essay Example | Topics and Well Written Essays - 3000 words

WEALTH MANAGEMENT - Essay Example The wealth of the business or investors will depend on the future cash flows that are expected from the investments. The decision makers should know the degree of risk associated with a given investment option that is to be taken. Various investors have different attitudes towards risk and they would want to invest in an efficient portfolio. An efficient portfolio refers to a portfolio that provides the highest returns than other portfolio at the same risk or least risk at the same level of return (GOEL, 2009). Every investor would want to maximize on the investment by diversifying any risks that may affect his/her income and should be able to achieve the highest rate of return. Wealth managers should develop proper strategies that can ensure income growth, reduce business risks and low tax rates. Portfolio theory has got certain limitations when used to analyze business risks. When we talk about risk, we refer to the unique consequences for any investment decision made which can be sorted out using probabilities. Business managers mostly would want to reduce risk to minimal levels based on the concept of diminishing marginal utility which says that as wealth grows, marginal utility declines at an increasing rate. There are various types of risks that must be considred when evaluating investment opportunities.the risks include: ii) The other aspect of risk that managers must look into is Financial risk which involves use of debt capital. This is increased by issuing more debts thereby incurring more fixed interest charges resulting into variability in net earnings iii) Portfolio risk investment can be reduced by significantly holding selected investments in a portfolio. This is called specific relevant risk because the element of risk should be considered by a well diversified risk. There are ways of measuring risks and these include : Scenario analysis which takes into consideration the effects of