Actuaries -- professionals who compile and interpret numerical data to determine statistical probabilities -- traditionally work in insurance-related fields, calculating and assessing various risks to help insurers set premium levels. However, the skills of an actuary can be invaluable in the investment world as well, providing a factual basis for investment decisions that might otherwise rely on a purchaser's past experience and good luck. A significant sector of actuaries work in the investment industry with a focus on stock markets in particular, acting as agents and advisers on long-term investment strategies.
The Difference
While all actuaries manipulate numerical information, an investment actuary has a different emphasis than an insurance actuary. A professional working in the securities and exchange industry works with statistics relating to interest rates, spreads, prepayment and liquidity, while one in the insurance field analyzes mortality, morbidity, withdrawals and casualty statistics. An investment actuary calculates future stock performance probability based on the composition of a particular investment portfolio, with attention to historic data on stocks, treasury yields and corporate index spreads -- the disparity in rates of return between corporate and government bonds.
Stock Valuation
An investment actuary can perform critical stock valuation services for investors who need to know whether an investment stock is valued appropriately, or whether a growth investment will live up to its potential in future. Besides determining company value by compiling and manipulating financial figures like earnings, revenues, cash flow and dividend yields, an investment actuary can take this historical company information, as well as more general market statistics, to project future earnings on a particular stock or the growth potential of an industry.
Predicting the Economic Future
Another way in which an actuary can advise stock market investors is by compiling economic scenarios for the future based on past trends, statistics and experienced judgment to assist clients in building strong portfolios. These economic models can predict future earnings, identify growth potential and quantify risk factors that particular investment industries may present in future. Actuarial information can help investors determine the best time to divest themselves of certain properties and invest in others.
Monitoring Investment Growth
Using the predictions developed for the performance of various stocks on the exchange, an investment actuary can compare actual results with her own projections to determine whether an acquisition is growing at the predicted rate. If performance is in line with actuarial projections, the investor should be realizing a healthy return on investment (ROI). If performance is lagging, an actuary can determine why, and revise predictions accordingly, allowing the investor to boost his portfolio by making strategic trades.
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