5 reasons why securities transactions assist with financial goals

US-PDGov

 

Securities transactions include a wide range of financial products. Carefully investing in a number of these is beneficial to financial goals in a number of ways. If this was not the case, many pensions and retirement accounts would not have the values they do. Moreover, securities transactions are essential to effective financial planning whether the transactions are made independently or not. After knowing which financial instruments to utilize, securities transactions are able to facilitate several financial objectives.

1. Profit

The first, and most important reason to participate in securities transactions is profit. Without it, investing would not be a worthwhile venture. In order to make profits, one must correctly allocate funds at risk levels proportional to one's tolerance for risk and loss. For example, the higher a particular securities transaction's risk becomes, the less amount of money is used to accommodate that risk. This helps ensure money within a portfolio is earned and not lost.

2. Hedging

Another good reason to engage in securities transactions is risk management. Hedging not only helps minimise risk exposure, but improves optimisation of one's capital allocations for potentially higher gains. To illustrate, an investor places 10 percent of his or her retirement account capital into small-cap stocks in an industry that is forecast to grow rapidly in the next five years. That same investor hedges this amount by allocating 60 percent of his retirement account's liquid assets into a bond fund consisting of of AAA rated international bonds.

3. Diversification

Diversification is used for hedging, but is different because the principle behind the diversification has less to do with how the transaction is made, and more to do with what the transaction buys. More specifically, diversification works by partaking in capital allocations across a number of industries via financial vehicles such as foreign exchange spread betting, whereas hedging is only performed via individual transaction construction such as a stop-loss order in forex, or bear put spread in stock options trading.

4. Security

Financial security is built through well implemented transactions. Over time the right money management decisions become the catalysts for financial security. However, to avoid investments leading to financial havoc, carefully planning transactions with financial professionals to meet individual or household financial planning objectives is often a good idea. With a well planned portfolio, financial security should grow to meet investment benchmarks, or provide an income via income investing strategies.

5. Retirement

Last but not least, securities transactions facilitate a good retirement. As investors move through life stages, they often make changes to their prior financial decision making, or restructure their investment plan to better meet retirement objectives. For instance, higher 401(k) contributions allow a more rapid saving, and reallocation of funds account for changes in economic conditions. Furthermore, a greater knowledge of new or specific financial products allows for a wider choice of financial transactions.