Financial Problem of Commodities and Chattels - Essay Example

Commodities and chattels are kinds of property that have instable market and not encouraged to be invested in. Financiers prefer investing in possessions that is more likely to give them a profit rather than a loss. Consequently, the argument that whether commodities and chattels are good investments for an investor’s overall portfolio would be veto. Commodities like rice, wheat gain and chattels like cell phone, car or other electronic gadgets, buildings, plots are personal property that depreciates within minutes and hours. Basing on the answer to this financial problem of commodities and chattels from an investor’s point of view as to his or her overall wealth portfolio further are some facts and figures to explain the choice of my answer. Commodities have two main characteristics, firstly to satisfy and fulfill a need of a human and secondly, it is marketable in nature and is meant to be sold or exchanged.1 As far as past performance of commodities is concerned according to LLC the term past performance means the past graph of any commodity, does not necessarily predicts future results, future clients must not base their choice on investing in this trading business only on the past decision, investors must also follow their intuition and observation in the trading business to make any investments.2 As far as financiers are concerned, profit on commodities is fairly less; therefore it does not help them generate enough revenue for them. Therefore, a common observation tells us that inequality in prices and tax paying decreases the effectiveness at playing a part of an alternate for direct guideline. In addition, in situations where taxes can influence market structure, fall down rather than taxes which are necessary to pay for achieving most favorable market structure.3 Taxation on commodities is only on cement and oil gas. The marketability of commodities is pretty high as their active secondary market for them is pretty good but one cannot exchange their personal commodities for trading purposes. Another drawback in investing in commodities is their storage as well as the risk of theft and damage is another negative point in investing in commodities.4 Nevertheless a number of forthcoming options may exist for every commodity, the usual risk of instable prices in the procedure of their making is still expected while what some manufacturer’s do is purchase a supply for comparatively lower prices and gain profit when they sell the finished product.5 When it comes to dealing and other costs of commodities the following four uncertainties in price has to be faced. Firstly, dealing and other costs of commodities rely on market prices instead of administratively resolute prices. Secondly, they transfer the risk to individuals who are better able as well as willing to guess risks. Thirdly, dealing and other costs can be linked to investing instruments, in some cases making investments practicable at lower cost; and finally in the majority of cases, other cost is less than government price involvement programs.6 An accurate measure of valuation lacks for commodities which keeps giving investors pauses from time to time. These investors, commodities producers and consumers can make suppositions and calculate approximately returns from a business chart; indication of value is preferred by investors.7 Source: IMF, US Depts. of Energy & Agriculture, Bloomberg, SSgA The graph above shows the global production of major commodities decreasing every year. Some of the commodities like Coffee, Steel, Crude Oil and Soya beans shoot to the maximum in the mid of 1978 and the starting of 1983 but slowly declines while reaching the year 2003. The graph shows the instability of commodities and their production, if an investor even considers investing in them the surety of gaining profit is not present. The same kind of graph appears from year after year with noticeable depression and fluctuation as a lot of resources are needed to have a good production every year which varies according to environmental changes which is beyond ones control. Now focusing on chattels, their characteristics are not any different from commodities. Surveys tell that the performance of chattels in the past few years is not impressive neither people consider investing in them as their market has been unstable and unprofitable.8 Taxation on chattels varies stating from a minimum of 10% and going a maximum to 25%. (Webpage, November 2007) Tossing some light at risk/return, the term can be understood as a relationship between the amount spent on investing on anything and the amount returned to you in that particular investment. Therefore, the risk in investing in chattels is fairly more. We can understand this from an example, when taking investments into consideration, we calculate ROI (Return on Investment) to conclude and evaluate profitability, or benefits in opposition to costs.9 The calculation generates digits for you to judge the productivity. We can evaluate return on investment by subtracting Return of money on an investment by the money you paid for an investment and divide the answer by the money you paid for that investment. If you pay $2.25 for an investment today, and they agree to pay you $4.00 on Wednesday, so subtracting $4.00 by $2.25 and dividing the answer by $2.25 gives a result of 77%. It is observed that the marketability of chattels is high as compared to commodities but due to the market instability, an investor must not keep his hopes high in gaining some profit. When dealing with an estate, an increasing problem for executors is the valuation of assets in the form of the chattels of the deceased. In probate expressions, chattels are considered to be one of the everyday possessions such as cell phones and other daily use belongings, unlike plots, buildings, reserves and the like. Solid assets like plots, homes, buildings and investments are easy to be valued rather than the ones mentioned before them as specialists can be called for exact calculations and as far as value of investments are concerned their market value are already available in the market. In situations like valuing assets for probate purposes, the authentic source is open market value, meaning the value for which the asset could be sold if a willing buyer and seller are present. Some specific assets, such as paintings of a famous painter, expensive art, stamps, coin collections and books etc should be valued by a skilled person if likely to be of important value. The same way cars can be estimated by a car salesperson or car guide and on the other hand a boat by ship broker. (Asset Valuation Problems – Chattels, Oliver Fisher Solicitors, August 5th, 2007). Other costs on chattels can be repairing. To sum up the commodities and chattels discussed above shows that investing or purchasing them results in loss rather than profit and therefore should not be included in the overall wealth portfolio of investors. The risk and return factor also indicates that investing in commodities and chattels will not increase a net income of an investor. The tax on chattels is also high, an investor may not make as much money as he or she spends on taxation. The instable market of commodities and chattels in the past has determined that the surety of gaining revenue is less than the chances of loss. For that reason, considering commodities and chattels in the wealth portfolio of an investor is not reasonable. References: Sources Reference List Endnote Asset Valuation Problems Chattels, Oliver Fisher Solicitors, August 5th, 2007 http://www.oliverfisher.co.uk/cms/catsection/asset_valuation_problems_chattelshtml Webpage Future Examiner Trading System Results and Comparisons, 2007) http://www.futuresexaminer.com/ Webpage Book Oscar L. Endler, Journal of the American Statistical Association, Vol. 38, No. 222 (Jun., 1943), pp. 260-261. Book Section Read More