Investors’ Motivation for Investing in Stocks

Subject: Finance
Pages: 2
Words: 386
Reading time:
2 min

The motivation of investors for investing in stocks, bonds, preferred shares, and convertibles is mainly due to returns. The main purpose or incentive for an investor to invest in various securities is the return and risk associated with each security. Apart from the returns and risk, there is a tax cadet who is associated with each investment. Establishing portfolios for individuals is the most diverse of investment situations. Every investor has a different set of circumstances, needs, and opportunities, considerations that shape and modify investment strategies and objectives are extremely wide. Portfolios differ widely in their requirements, time horizons, risk thresholds, and cash flows. The objective of portfolio management is to reconcile these variables in such a manner as to minimize risk and maximize return, but the goal and the process of reconciling the variables are the same regardless of who owns the assets in question.

All portfolios share one objective; to provide the largest pool of assets from which the owner can finance expenditures now or at some future date. Because the future is uncertain, however, we can never know precisely what the value of assets will be over time, and we know even less about what their purchasing power will be. The degree of risk that we take should, therefore, vary in each case, based upon the time horizon within which we have to work and the likelihood that the portfolio will enjoy a net cash inflow or will be subject to cash withdrawals. The latter is matter liquidity. The art of portfolio management consists of nothing more than selecting securities that fit within the time and cash flow constraints of the investor; the application of this process to differing portfolios is only a variation on a constant theme.

Investors differentiate among four goals, current income, growth in current income, capital appreciation, and preservation of capital. If viewed rationally, however, all investors should want to achieve all four of these goals; obviously, no one wants to lose money, while everyone wants to have as much as possible. The search for capital gains inevitably involves the risk of loss of capital; assured income is seldom available with opportunities for capital gains; high income is frequently associated with high risk.