Institutional Investment Essay Example | Topics and Well Written Essays - 2000 words - 1

Institutional Investment - Essay ExampleThe discussion will, however, start by providing orbit information on the two plans.These plans are abstractly simpler and involve the employer (and in some cases the employee) making unbroken contributions to the retirement account of the employee. The amount of contributions is predetermined, usually a specified fraction of the salary. This fraction is, however, subject to alterations in the course of the employees career. In this plan, the both contributions are tax-deductible although the investment income accumulates tax-free. In nigh cases, the employee decides on his/her woof of account investment. This may include investing in stock markets, bonds or any security that pleases them. At retirement, the employee can either receive an annuity or a lump sum, and the size of this money depends on the value of the accumulated funds in the employees retirement account (Poterba et al., 2007). The employee bears the risk of their investment a nd and then the employer has no any extra obligation beyond contributing to their employees retirement plan account. The rating of outlined contribution plans is simple and involves measuring the market value of the assets created in the retirement account. In most cases, the employee is guided in their personal financial planning by their defined contributions plans stag (Clark 1999).Unlike the defined contributions plan which focuses more on the value of retirement accounts created assets, defined benefits plan focuses on the flow of benefits received by the employee at retirement. Typically, a defined benefits plan uses the employees wage history and the years of service as the determinants of the value of the benefit (Huberman, Iyengar & Jiang 2007). Upon retirement, the employee receives a defined periodical amount that is guaranteed for their life and that of their spouse. In some cases, the plan allows room