Steps taken to diversify the portfolio
HowRu can diversify its related fields by buying up the competitors to increase the corporate synergy and the overall market share. Similarly, it can also merge with some companies that are not related if it has a weak market share. Since this company deals with card production, it means that it is a manufacturing company. Therefore, it focuses more on production and sales because realizing the strength of the company will give out some ideas concerning the fields that are more profitable when diversified. Moreover, HowRu should look for other growing industries with faster growth rate to diversify into since they are faster than HowRu. Similarly, the company should narrow down its results to the business sectors with established competencies that can offer some strategic advantages.
The company should venture into a joint venture with another company with the required skills that are needed. Additionally, if the IT department of HowRu has a good set of skills, then it should branch it off to form a separate business. Before buying or entering into a merger with a different company, HowRu should be in a position of assessing its strengths and weaknesses before investing in such companies. However, if HowRu has a plan of spinning off a new company, then it should support it for some period before it starts making profits.
Necessity of diversification in risk management
Diversification is the act of investing in many but different types of individual assets or securities for the main purpose of reducing risk. Therefore, it is a technique that limits risk through investment allocation to several financial instruments, companies, and other sectors (Schroeck, 2002). The main aim of diversification is the maximization of returns by investing in different sectors that will offer different reactions to the same event.
According to investment professionals, diversification does not offer a guarantee against loss, but it is an essential business component for attaining long-term financial goals while minimizing risk (Field, 2012).
Similarly, diversifying the company through venturing into new businesses, merger and acquisitions is a good strategy instead of relying on the main business alone for revenue generation. A diversified business groups are flexible and provide for more options as the economy changes. On the other hand, it can increase the cost of management and bureaucracy; thus leading to inefficiency and this will make the process of the portfolio to be unsuccessful as compared to individual companies (Frenkel, Hummel & Rudolf, 2005). However, companies generate more proceeds when combined than individual businesses.
Steps in diversifying card business
Find the company’s limits. The company management should look at what the company has to invest in the cards concerning finance and other available resources for production. Find the possibilities of the company. This involves looking for the right possibilities in diversifying the card business. However, the company should think vertically and horizontally as it starts diversifying on what it has with the available resources. Figure out if diversification of cards fits the business within the defined business limit and if diversifying the card production fit the defined limit of the company in relation to what the company does. Therefore, if the company has gained expertise in card diversification, establish a vendor relationship to enjoy negotiated discounts, and significant connections. Balance the business growth with maintenance. Always new business ideas are thrilling and demanding, and when diversifying the card business, a company should not lose focus on the card maintenance while keeping attention to the needs of the current card production.
In simple terms, diversification means growing business to a new direction; hence, don't diversify the cards from a scratch but compare every choice with the produced documents of the company and test the one that fits the business values regarding diversification.
Six Suggestions on allocation of funds to new investments
Firstly, Strategic Allocation of funds. There should be a proportional allocation of funds based on the expected rate of return and this should for each class of funds. Moreover, the funds should be allocated to stocks of the company. Secondly, Constant-Weighting. Strategic allocation of funds implies the rule of buy and hold (Bergen, 2004). Therefore, this suggestion will be applicable during the rebalance of the portfolio because if an asset is reducing in value, it should be purchased and if the value is increasing, it should be sold. Thirdly, Tactical Fund Allocation especially to the flexible component of market timing to the portfolio and this will allow for participation in the economic conditions in a favorable manner for an individual class of assets.
The forth one is Dynamic Fund Allocation. The mix of asset or funds should be adjusted as the markets rise and fall, and as the economy becomes strong and weak. Therefore, he funds should be allocated to weaker assets such as stocks that are showing weakness in the market. Therefore, the marketing conditions are strong; stocks should be purchased in anticipation of continuous market gains. The fifth is the Insured Fund Allocation. If there is a drop of portfolio below the base value, then one should invest their funds in risk-free assets for the base value to become fixed. Therefore, at this time, a company will consult their financial advisors regarding fund reallocation, perhaps this might change the entire investment strategy of the company.
Lastly, Integrated Fund Allocation. Both economic expectations and risk should be considered while integrating funds into new ventures to establish an asset mix.
References
Bergen, J. (2004). 6 Asset Allocation Strategies That Work | Investopedia. Investopedia. Retrieved 27 February 2016, from http://www.investopedia.com/articles/04/031704.asp
Field, C. (2012). Managing Risk of Extreme Events. Cambridge University Press.
Frenkel, M., Hummel, U., & Rudolf, M. (2005). Risk Management: Challenge and Opportunity. Springer Science & Business Media.
Schroeck, G. (2002). Risk Management and Value Creation in Financial Institutions. John Wiley & Sons.
