Benefits of Company Investment and Trading Securities - Coursework Example

Securities in investment also ensure there is the separation of ownership of possession and management of assets. This results in easy transfer and widespread ownership, which leads to the distribution of wealth over investments and professional management resulting in wider access to many sources of capital. Investment in securities by companies leads to the creation of capital markets. This capital market results in widespread ownership, which leads to better allocation of resources thus improving economic growth. Investment in securities such as fixed-income securities ensures more of its financing is done through issuing of bonds. This results in an advantage of cash flows to the fixed-income securities as the interest payments (John, 2008). 

Reasons for investment diversification reduce risk by maximizing returns due to investing in different categories that react in a different way to the same happening. This is because if a company has only a portfolio of railways, then all trains are involved in a strike then the railway company will experience a great loss but if the company had a diversification of trains and buses only part of the portfolio would be affected (Chris, 2011). There is a possibility that the road stock prices would increase, as the passengers will turn to the buses as alternative means of transportation. Diversification of different asset classes minimizes risk as they react opposite to adverse situations.

Variation in asset divisions such as stocks and bonds ensures that if there is a negative effect in one it will be counterbalanced by positive results in the other one (Chris, 2011).