Investment Considerations
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If you are an investor, why do you want to invest in the security market? Why do you want to invest in the stock market?
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Solution Summary
Investing in accord with the principles of finance - the factors involved and the potential impacts. A primer for developing an investment strategy.
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Simply put, the investor is interested in maximizing their personal wealth. As such, they are following the primary rule of finance which is self interested behavior. This behavior dictates that any investor's primary goal is capital appreciation - capital gain over some period of time. Based upon the question above, we seem to be delineating between the securities market and the stock market. Essentially the securities market encompasses the stock market , so I am assuming you mean the debt market for securities, and the equity market for the stock market?
When we consider the debt market, we are usually interested in investing in Bonds, which are debt instruments which pay a stated amount of interest over a specific period of time (known as the maturity period). At the end of the maturity period the investor is entitled to their original investment amount being returned, and the interest payments are considered to be a return on their original investment. So the investor is creating an annuity, which is a fixed payment over a period of time, which usually results in moderate to lower level of return in terms of the risk taken. This approach involves the second principle of finance which relates to the time value of money. In this instance, the investor recognizes that money decreases in value over time (due to economic factors such as inflation, interest rates, reduction in purchasing power, and the like), but is willing to gain the return because it is relatively certain, consistent, and ...
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