Question

Paige is considering investing in Tesla securities. Paige has the option to invest in preferred stock or bonds. Claudia decided to purchase stock rather than bonds. The return on the stock that she sold in 2020 was $10,000 including qualified dividends and capital gain.

Is this an example of “timing?” Explain.

Answer 1

INVESTING IN TESLA SECURITIES

Paige has two options in investing Tesla securities either investing in preferred stock or investing in bonds,this is the portfolio diversification and invest in more secure option based on the time, return, safety, convenience,preferences and other elements of investing determinants.Claudia decided to purchase stock rather than bonds.Here we are geting two types of return on investing different portfolios, it may be fixed return and variable return benefits. Most of them preferred high return benefit but they are not facing more riskier matter at that time something frustration happened in the benefit pattern. In a port folio diversification ,it is a direct relationships in the return and risk oriented determinants.If risk is more we can earn more return from the investments.An investor invest in different portfolios for avoiding bad flectuations from the economic investment avenues.Here ,Claudia decided to purchase stock rather than bonds.thats her decisions and itmay be determinats with the effect of 'timing'concept.The return on the stock that she sold in 2020 was $10,000 including qualified dividends and capital gain.It may the effect of timing of covid-19 pandemics.

From an investor's perspective, bonds are safer but offer less upside than preferred stock. Preferred stock tends to have a lower par value and higher yields. It also tends to experience greater price volatility and be less secure than a bond.Stocks offer the potential for higher returns than bonds but also come with higher risks. Bonds generally offer fairly reliable returns and are better suited for risk-averse investors.Preferred stock derives its name from the fact that it carries a higher privilege by almost every measure in relation to a company's common stock.Preferred stocks can make an attractive investment for those seeking steady income with a higher payout than they'd receive from common stock dividends or bonds. But they forgo the uncapped upside potential of common stocks and the safety of bonds.But certain disadvantages to  preferred stoks include limited upside potential, interest rate sensitivity, lack of dividend growth, dividend income risk, principal risk and lack of voting rights for shareholders.Rather than the disadvantages, preferred stoks includes certain advantages such as Preferred stocks are a hybrid type of security that includes properties of both common stocks and bonds. Another advantage of preferred stocks is their tendency to pay higher and more regular dividends than the same company's common stock. Preferred stock typically comes with a stated dividend.

Most preferred stocks are purchased by institutional investors at the time the company first goes public because they have an incentive to buy preferred strocks that individual retail investors do not buy it.Companies use it after they've gotten all they can from issuing common stocks and bonds. Preferred stocks are more expensive than bonds. The dividends paid by preferred stocks come from the company's after-tax profits.It runs cheaper for the company. The market prices of preferred stocks do tend to act more like bond prices than common stocks, especially if the preferred stock has a set maturity date. Preferred stocks rise in price when interest rates fall and fall in price when interest rates rise.Preferred stocks, like bonds, pay a routine prearranged payment to investors. However, more like stocks and unlike bonds, companies may suspend these payments at any time.The company that sold you the preferred stock can usually, but not always, force you to sell the shares back at a predetermined price.

Timing risk is the speculation that an investor enters into when trying to buy or sell a stock based on future price predictions.This could cause harm to the value of an investor's portfolio resulting from purchasing too high or selling too low.Market timing is the strategy of making buying or selling decisions of financial assets (often stocks) by attempting to predict future market price movements.This is an investment strategy based on the outlook for an aggregate market, rather than for a particular financial asset.Investing ensures present and future long-term financial security. The money generated from your investments can provide financial security and income. One of the ways investments like stocks, bonds, and other portfolios provide income is by way of a dividend and interest.The biggest problem of timing strategies is difficult to correctly predict highs and lows in the market.Common wisdom today tells us that timing the market doesn't work. As hard as investors may try, earning massive profits by timing buy and sell orders around future market price movements is an elusive concept. However, some investors can still profit from timing the market in a smaller, more reactionary way.The market timing hypothesis is a theory of how firms and corporations in the economy decide whether to finance their investment with equity or with debt instruments.The idea that firms pay attention to market conditions in an attempt to time the market is a very old hypothesis.So Claudia, she sold stock in 2020 was $10,000 including qualified dividends and capital gain.