Managing Personal Finances - Essay Example

QATAR UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF FINANCE AND ECONOMICS

UNDERGRADUATE

SPRING 2016

PROJECT WORK: PERSONAL FINANCE

Personal Investment Portfolio

SUBMITTED BY

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SUPERVISION BY

DR. ARUNA DHADE

Table of Contents

Abstract3

1.0 MANAGING PERSONAL FINANCES4

1.1 Introduction4

1.2 Investment Goal and Objectives5

1.3 Table of QR 1,000,000 allocation5

2.0 INVESTMENT PORTFOLIO6

3.0 RETURNS OUTCOMES12

3.1 Review of Portfolio distribution and Earnings12

3.2 Results and Conclusion13

• Abstract

The group has been given QR 1,000,000 in hand and asked to invest in different investment options in order to earn good returns on the original amount by the end of the investment time period- 01 March 2016 to 27 May 2016. The following investment options were available- Stock Market Investment, Bank deposits, Bullion market (Gold and other metals) Bonds/Debentures and Currency market.

After comparing the different investment options, the given short term period and the financial market of Qatar, the best decision was to invest in ‘high-risk, high-profitability’ market, as the main objective of the investment is to generate good returns from it. From the available five investment markets, the three markets selected for investing the money are Qatar stock market, Forex/currency market and Bullion market (Gold and other metals). The reason for selecting these three markets is because the stock market and the currency market is very volatile and fluctuating, which can earn us high return anticipating the market does not deteriorate, and to spread the risk we have selected the bullion market which is more stable and less volatile. (Investing, 2016).

• 1.0 MANAGING PERSONAL FINANCES
  • 1.1 Introduction

A portfolio investment is made with the expectation of earning maximum return from the diversified investments in various markets while minimizing the risks. The main aim of creating a diversified portfolio is to spread the risk associated with the investment in the highly volatile fluctuating market.

The three investment options selected for this project are-

• Stock market- In stock markets, shares and securities are traded in high volume which makes the market more volatile and more liquid. Stock market is very flexible and the prices of the shares fluctuate rapidly. Stock market works under different regulatory frameworks which make investing in the stock market safe for the investors. The chances of getting high return are also more in stock markets as the price of the stocks can rise suddenly (Reilly & Brown, 2011).
• Forex/currency market- The Forex market is the most liquid market in the world, as there is constant supply and demand for money. Profit potential is very high in the Forex market as an investor can make money whether currencies are going up or down. If the investor thinks a currency pair (the price of one currency with respect to another) is going up, he can buy it and if thinks the currency pair is going down, he can sell it and in the process can make profit. The market is open 24/5 which makes it easily accessible (Portfolio Management, 2016).
• Bullion market- Buying bullion (Gold, silver, etc) is a lucrative way to invest money and a great way to diversify risk. The main aim of investing in a bullion market is to buy them when prices are low and sell them when prices are high. Investing in commodities like gold, silver and platinum is comparatively less risky than any other form of investment because this market is more stable and less risk oriented and it helps in diversifying the portfolio and spreading the risk (C. A. P. M., 2010).
  • 1.2 Investment Goal and Objectives

In today’s financial market, a well-maintained diversified portfolio is very important for any investor. An investor should plan and diversify his portfolio in such a way which gives him maximum return while minimizing the risk, in near future.

The investment goal of the group is to allocate the capital of QR 1,000,000 in different investment markets by creating a diversified portfolio and spreading the risk, and after the end of the investment period the group has to evaluate which market generated maximum return and high profit margin.

The different investment options were analyzed with the current financial market condition of Qatar and considering the limited time period and the fact that the group was seeking a short term investment that has high profitability, it was appropriate to be an aggressive investor and take some risk. Hence, we invested in the ‘high risk, high profit’ investment markets like the stock market and the forex market anticipating if the market conditions remain good, it can generate us a significant margin of high profit.

• • 1.3 Table of QR 1,000,000 allocation

Markets

Investments

% of investment

Principal amount (QR)

Stock Market (40%)

Qatar National Bank

Qatar National Cement Co.

Al Meera

Qatar Insurance Company

10%

10%

10%

10%

100,000

100,000

100,000

100,000

Bullion Market (30%)

Platinum

Gold

Silver

5%

10%

15%

50,000

100,000

150,000

Forex Market (30%)

Euro

GBP

CAD

10%

10%

10%

100,000

100,000

100,000

Total

100%

1,000,000

• 2.0 INVESTMENT PORTFOLIO

1. Stock Market

40% of the money, i.e., QR 4, 00,000 was decided to be invested in the Qatar stock market. We selected four different companies listed in the Qatar stock exchange to invest the money. The companies are Qatar National Bank, Qatar National Cement Co., Al Meera and Qatar Insurance Co. We selected these companies based on their stock price history and their reputation in the market. We invested 10% in each company, i.e. QR 1, 00,000 invested in each company.

a. Qatar National Bank

Date

Transaction

Principal amt.

Price (QR)

Earnings

27 Mar

Buy

QR 1,00,000

QR 137.8

725.69 units

29 Mar

Sell

725.69 units

QR 141.1

QR 1,02,394.78

8 Apr

Buy

QR 1,02,394.78

QR 138

742 units

27 Apr

Sell

742 units

QR 144

QR 1,06,846.72

(Sources: Quotenet, 2016)

On 27th March we invested QR 1, 00,000 in QNB by purchasing 725.69 stocks at the price QR 137.8 each. On 29th March we sold the stocks at QR 141.1 and earned QR 1, 02,394.78. On 8th April we reinvested the money to purchase 742 stocks at the price QR 138. Then finally on 27th April we sold those stocks at QR 144 and earned QR 1, 06,846.72. Hence, the net profit was QR 6,846.72.

b. Qatar National Cement Co.

Date

Transaction

Principal amt.

Price (QR)

Earnings

25 Mar

Buy

QR 1,00,000

QR 85.8

1165.50 units

30 Mar

Sell

1165.50 units

QR 88.3

QR 1,02,913.75

22 Apr

Buy

QR 1,02,913.75

QR 87

1,182.92 units

25 Apr

Sell

1,182.92 units

QR 89.8

QR 1,06,225.92

(Sources: Quotenet, 2016)

On 25th March we invested QR 1, 00,000 in Qatar National Cement Co. by purchasing 1,165.50 stocks each at the price of QR 85.8. On 30th March we sold those stocks at QR 88.3 and earned QR 1, 02,913.75. We reinvested this money on 22nd April to purchase 1,182.92 stocks at the price of QR 87 each. We finally sold those stocks on 25th April at QR 89.8 and earned QR 1, 06,225.92. Hence, net profit was QR 6,225.92.

c. Al Meera

Date

Transaction

Principal amt.

Price (QR)

Earnings

5 Apr

Buy

QR 1,00,000

QR 200

500 units

11 Apr

Sell

500 units

QR 205

QR 1,02,500

18 Apr

Buy

QR 1,02,500

QR 198.9

515.33 units

3 May

Sell

515.33 units

QR 220.1

QR 1,13,425.09

(Sources: Investing, 2016)

On 5th April we invested QR 100,000 in Al Meera a consumer goods company, to purchase 500 stocks of QR 200 each. On 11th April we sold those stocks at QR 205 and earned QR 102500. We reinvested the money to purchase 515.33 stocks on 18th April at the price QR 198.9 each. On 3rd May we sold the stocks at QR 220.1 and earned QR 113,425.09. Net profit was QR 13,425.09.

d. Qatar Insurance Co.

Date

Transaction

Principal amt.

Price (QR)

Earnings

28 Mar

Buy

QR 1,00,000

QR 79.5

1,257.86 units

2 Apr

Sell

1,257.86 units

QR 83

QR 1,04,402.52

6 Apr

Buy

QR 1,04,402.52

QR 81.5

1,281.01 units

11 Apr

Sell

1,281.01 units

QR 84.5

QR 1,08,245.56

(Sources: Quotenet, 2016)

We invested QR 100,000 on 28th March to buy 1257.86 stocks from Qatar Insurance Co. at the price of QR 79.5 each. On 2nd April we sold those stocks at QR 83 and earned QR 104,402.52. We reinvested the money to purchase 1,281.01 stocks at the price QR 81.5 each. Finally on 11th April we sold those stocks at the price QR 84.5 and earned QR 108,245.56. Net profit earned was QR 8,245.56.

2. Bullion Market

We decided to invest 30% of the money in the commodity market. This market is more stable and has comparatively less fluctuations. The best options in this market are Platinum, Gold and Silver as their prices are more stable. We allocated 5% capital to Platinum (QR 50,000), 10% to Gold (QR 100,000) and 15% to Silver (QR 1,50,000).

a. Platinum (5%)

Date

Transaction

Principal amt.

Price (USD)

Price (QR)

Earnings

18 Mar

Buy

QR 50,000

$ 975

QR 3,550.56

14.08 ounces

22 Mar

Sell

14.08 ounces

$ 990

QR 3,605.18

QR 50,769.17

26 Apr

Buy

QR 50,769.17

$ 1,010

QR 3,678.02

13.80 ounces

3 May

Sell

13.80 ounces

$ 1,080

QR 3,932.93

QR 54,287.80

(The prices were converted from USD to QR using the current exchange rate)

(Sources: Kitco, 2016)

On 18th March we invested QR 50,000 by purchasing 14.08 ounces of platinum at the price of QR 3,550.56 per ounce. On 22nd March we sold them at QR 3,605.18 and earned QR 50,769.17. We reinvested this money to purchase 13.80 ounces of platinum at QR 3,678.02 per ounce. Finally on 3rd May we sold them at QR 3,932.93 earning QR 54,287.80. Net profit was QR 4,287.80.

b. Gold (10%)

Date

Transaction

Principal amt.

Price (USD)

Price (QR)

Earnings

23 Mar

Buy

QR 1,00,000

$ 1,220

QR 4,442.75

22.51 ounces

12 Apr

Sell

22.51 ounces

$ 1,255

QR 4,570.21

QR 102,868.94

25 Apr

Buy

QR 102,868.94

$ 1,240

QR 4,515.58

22.78 ounces

4 May

Sell

22.78 ounces

$ 1,295

QR 4,715.87

QR 107,431.73

(The prices were converted from USD to QR using the current exchange rate)

(Sources: Kitco, 2016)

On 23rd March we invested QR 100,000 by purchasing 22.51 ounces of gold at the price of QR 4,442.75 per ounce. We sold them on 12th April at QR 4,570.21 and earned QR 102,868.94. By reinvesting the money we purchased 22.78 ounces of gold on 25th April at QR 4,515.58 per ounce. On 4th May we sold them at QR 4,715.87 and earned QR 107,431.73. Hence, net profit was QR 7,431.73.

c. Silver (15%)

Date

Transaction

Principal amt.

Price (USD)

Price (QR)

Earnings

16 Mar

Buy

QR 1,50,000

$ 15.25

QR 55.53

2701.24 ounces

18 Mar

Sell

2701.24 ounces

$ 15.95

QR 58.08

QR 156,888.17

18 Apr

Buy

QR 156,888.17

$ 16.25

QR 59.18

2651.03 ounces

29 Apr

Sell

2,651.03 ounces

$ 17.95

QR 65.37

QR 173,298.07

(The prices were converted from USD to QR using the current exchange rate)

(Sources: Kitco, 2016)

As silver has the lowest price of all the three commodities, we invested QR 150,000 on 16th March by purchasing 2,701.24 ounces of silver at the price QR 55.53 per ounce. On 18th March we sold them at QR 58.08 and earned QR 156,888.17. We reinvested the money on 18th April to purchase 2,651.03 ounces of silver at QR 59.18 per ounce. Finally on 29th April we sold them at QR 65.37 and earned QR 173,298.07. Net profit was QR 23,298.07.

3. Forex Market

We invested 30% of the money in the foreign exchange market. This market is highly unstable and risk oriented, but as we are risk takers we decided to invest here. We allocated 10% of the capital to EURO, 10% to GBP/British pounds and rest 10% to CAD/Canadian Dollars.

a. EURO (10%)

Date

Transaction

Principal amt.

Price (QR)

Earnings

21 Mar

Buy

QR 1,00,000

QR 4.05

€ 24,691.36

30 Mar

Sell

€ 24,691.36

QR 4.12

QR 101,728.40

19 Apr

Buy

QR 101,728.40

QR 4.08

€ 24,933.43

5 May

Sell

€ 24,933.43

QR 4.20

QR 104,720.41

(Sources: Themoneyconverter, 2016)

On 21st March we invested QR 100,000 by purchasing Euro 24,691.36 at QR 4.05 each. On 30th March we sold the amount at QR 4.12 to get QR 101,728.40. We reinvested the amount on 19th April to buy Euro 24,933.43 at QR 4.08 each. Finally on 5th May we sold the amount at QR 4.20 to earn QR 104,720.41. Net Profit was 4720.41.

b. GBP/British Pound (10%)

Date

Transaction

Principal amt.

Price (QR)

Earnings

25 Mar

Buy

QR 1,00,000

QR 5.142

£ 19,447.69

29 Mar

Sell

£ 19,447.69

QR 5.235

QR 101,808.63

17 Apr

Buy

QR 101,808.63

QR 5.178

£ 19,661.77

4 May

Sell

£ 19,661.77

QR 5.301

QR 104,227.03

(Sources: Themoneyconverter, 2016)

On 25th March we bought GBP 19,447.69 at QR 5.142 each by investing QR 100,000. We sold the amount on 29th March at QR 5.235 to earn QR 101,808.63. We reinvested the amount on 17th April to purchase GBP 19,661.77 at QR 5.178 each. On 4th May we sold the amount at QR 5.301 and earned QR 104,227.03. Net profit was QR 4,227.03.

c. CAD/Canadian Dollar (10%)

Date

Transaction

Principal amt.

Price (QR)

Earnings

24 Mar

Buy

QR 1,00,000

QR 2.725

$ 36,697.25

28 Mar

Sell

$ 36,697.25

QR 2.817

QR 103,376.15

20 Apr

Buy

QR 103,376.15

QR 2.831

$ 36,515.77

2 May

Sell

$ 36,515.77

QR 2.885

QR 105,347.99

(Sources: Themoneyconverter, 2016)

On 24th March we invested QR 100,000 by purchasing CAD 36,697.25 at QR 2.725 each. We sold the amount on 28th March at QR 2.817 to earn QR 103,376.15. By reinvesting the amount on 20th April we purchased CAD 36,515.77 at QR 2.831 each. Finally we sold the amount on 2nd May at QR 2.885 to earn QR 105,347.99. Net Profit was QR 5,347.99.

• 3.0 RETURNS OUTCOMES
  • 3.1 Review of Portfolio distribution and Earnings

Investments

% of investment

Principal amount (QR)

Profit (QR)

Profit Ratio

Qatar National Bank

10%

100,000

QR 6,846.72

7%

Qatar National Cement Co.

10%

100,000

QR 6,225.92

6%

Al Meera

10%

100,000

QR 13,425.09

13%

Qatar Insurance Co.

10%

100,000

QR 8,245.56

8%

Platinum

5%

50,000

QR 4,287.80

9%

Gold

10%

100,000

QR 7,431.73

7%

Silver

15%

150,000

QR 23,298.07

16%

EURO

10%

100,000

QR 4,720.41

5%

GBP

10%

100,000

QR 4,227.03

4%

CAD

10%

100,000

QR 5,347.99

5%

Total

100%

1,000,000

QR 84,056.32

8%

• • 3.2 Results and Conclusion

We generated maximum profit from the silver investment with a profit ratio of 16%. This is due to the reason that bullion market is comparatively more stable and less volatile and silver being the least expensive commodity out of the three metals, profit margin is high. The price fluctuation of silver was very low during the month of March when we first invested and sold off the first lot earning a low profit. After waiting for a month when its price started to rise we immediately reinvested on 18th of April and sold off the second lot at the end of April earning huge profit.

The second highest return is from the stocks of Al Meera. The stock price of Al Meera is comparatively high than QNB, Qatar Cement co. and Qatar Insurance co., hence it was a huge risk investing there. The stock prices of Al Meera were falling during the month of March hence we could not take a risk in investing during that period. From April the stock price started to rise gradually and we made a low profit in the first investment. But from the middle of April, the stock prices started to rise and anticipating that the prices will continue to rise we reinvested our money, which earned us a significant profit when we sold the second lot at the beginning of May.

Investing in platinum also earned us a major profit. The price of platinum has fallen down significantly since the last few months; hence we allocated only 5% of our capital in platinum investment, anticipating that the price may further fall. During March its price did not fluctuate much and it did not earn us a significant profit, but from the middle of April its price started to rise gradually and selling of the second lot earned us high profit.

The currency market did not perform well as anticipated. The profit margin from the currency market is very low. The EURO and GBP markets witnessed very less fluctuations throughout March, April and May, hence profit margins are very less, whereas the CAD market was rising gradually. The total profit ratio is 8% of the initial capital (QR 1,000,000), which is fairly good taking into consideration the current financial market condition.