How to Build an Investment Portfolio
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Transcript of How to Build an Investment Portfolio
Finding Your Way Through the Maze of Investing
How To Build Your Portfolio: Insights into Amway RSP Stock Funds
How To Build Your Portfolio
Our goal is to provide you with an understanding of how to manage portfolio risks – the most important aspect of an effective portfolio.
How To Build Your Portfolio
Portfolio:a collection of investments held by an institution or a private individual
Mutual Fund A
Mutual Fund B
Mutual Fund C
How To Build Your Portfolio
• RISK: the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).
How To Build Your Portfolio
• RISK: the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).– All investments are risky– Combining different investments can increase or
decrease overall risk– You cannot manage returns; you CAN manage
risk
Correlation: The measure of how two securities move in relation to each other.
How To Build Your Portfolio
Negativ
e
Positive +1-1
0
How To Build Your Portfolio
Correlation:The measure of how two securities move in relation to each other.
How To Build Your Portfolio
Asset Class:A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.
• Stocks• Bonds• Cash
Stocks
Bonds
Cash
Asset Classes
How To Build Your Portfolio
• Asset Allocation across the asset classes will reduce positive correlation
Stocks
Bonds
Cash
Asset Classes
• Systematic Risk– Market Risk– Cannot be eliminated– Eg. Recession, war, elections
• Unsystematic Risk– Specific risk– Can be reduced/eliminated– Eg. Worker strike, bankruptcy,
supply chain interruption
How To Build Your Portfolio
How to Build Your Portfolio
Domestic Stocks
Corp Bonds
US Treasury Bonds
Intl Stocks
Cash
Chocolate
other
Asset Classes have Categories• Stocks
– Domestic• Large Cap• Mid Cap• Small Cap
– International• Large Cap• Emerging Nations
• Bonds– US Treasury Bonds
• 10 year• 30 year• TIPS
– US Corporate Bonds• Investment Grade• High Yield
– International Bonds
Diversification:Mix a variety of investments across the Asset Class Categories to eliminate unsystematic risk
How To Build Your Portfolio
70%
20%
10%
How To Build Your Portfolio
How To Build Your Portfolio
Small Cap
Mid Cap
Large Cap
Value
Alps/WMC
Hotchkis & Wiley
Blend
Spartan 500
Vanguard Health Care
Vanguard Mid Cap IndexAmerican Century Real Estate
Vanguard Small Cap Index
Growth
Mainstay
T Rowe Price New Era
Morgan Stanley
Baron Growth
Neuberger Berman Genesis
How To Build Your Portfolio
Portfolio construction: Methods• At one extreme is
the “returns chaser”
How To Build Your Portfolio
• At other extreme is the professional investment manager
How To Build Your Portfolio
• Your method should be in-between
How To Build Your Portfolio
• Create and follow a personal asset allocation policy
• eg.– Stocks : 45-65%– Bonds : 30-50%– Cash : 5-15%
Stocks
Bonds
Cash
Asset Classes
How To Build Your Portfolio• Identify your personal risk profile: how
sensitive are you to losing money?
ConservativeAggressive
Moderate
20% 60% 100%
https://personal.vanguard.com/us/FundsInvQuestionnaire
How To Build Your PortfolioAnd decide how much risk you can accept for your assets
4.29% -4.91%
6.73% -3.37%
13.85% -3.06%
One Month
Three Months
One Year
One Month
Three Months
One Year
Worst ReturnsBest Returns
8.24% -13.63%
14.23% -12.71%
27.18% -24.75%
One Month
Three Months
One Year
One Month
Three Months
One Year
Worst ReturnsBest Returns
14.25% -22.51%
23.34% -24.05%
41.27% -40.69%
One Month
Three Months
One Year
One Month
Three Months
One Year
Worst ReturnsBest Returns
Conservative Investors (20% Stock)
Moderate Investors (60% Stock)
Aggressive Investors (100% Stock)
How To Build Your Portfolio
• Create and follow a personal asset allocation policy
• Identify Asset Allocation triggers (see Monitoring the Market seminar)
Stocks
Bonds
Cash
Asset Classes
How to Build Your Portfolio
Domestic Stocks
Corp Bonds
US Treasury Bonds
Intl Stocks
Cash
Chocolate
other
• Create and follow a personal asset allocation policy
• Identify Asset Allocation triggers (see Monitoring the Market seminar)
• Reduce unsystematic risk through diversification
Diversification:Mix a variety of investments across the Asset Class Categories to eliminate unsystematic risk
How To Build Your Portfolio
70%
20%
10%
Closet
indexing
Small Cap
Mid Cap
Large Cap
Value
Alps/WMC
Hotchkis & Wiley
Blend
Spartan 500
Vanguard Health Care
Vanguard Mid Cap IndexAmerican Century Real Estate
Vanguard Small Cap Index
Growth
Mainstay
T Rowe Price New Era
Morgan Stanley
Baron Growth
Neuberger Berman Genesis
How To Build Your Portfolio
How To Build Your Portfolio
How To Build Your Portfolio
How To Build Your Portfolio
• Summary– Match your personal risk preferences
• Conservative, Moderate, Aggressive
– Manage risk exposure by combination of investments• Asset Allocation• Diversification
– Closet indexing – investing the size and styles as they are represented in market; mimicking the market
– Know each fund’s risk and how it will effect the portfolio• Max & Min return swing
– Monitor - Triggers for adjusting allocation
How To Build Your Portfolio
NEVER forget your focus!– Retirement is your end-
game• Retirement goals
– Focus on longer term• Investment horizon
– Stick with your Basic Plan• An Investment Policy
Statement helps you remember
Thank YouSchedule your personal consultation now!
Visit http://amway.bemanaged.comContact us at (616) 871-0751 or (888) 738-8780
Large Cap
Mid Cap
Small Cap
Value
Alps/WMC
Hotchkis & Wiley
Blend
Spartan 500
Vanguard Health CareVanguard Mid Cap IndexAmerican Century Real Estate
Vanguard Small Cap
Index
Growth
Mainstay
T Rowe Price New EraMorgan Stanley
Baron Growth
Neuberger Berman Genesis
How To Build Your Portfolio
Portfolio construction• Wait. Why a
portfolio? Why not just 1 great fund?
How To Build Your PortfolioCommon sense tells us that your likelihood of experiencing loss is greater if you are invested in just 1 fund.
How To Build Your Portfolio
Small Cap
Mid Cap
Large Cap
Value
Alps/WMC
Hotchkis & Wiley
Blend
Spartan 500
Vanguard Health Care
Vanguard Mid Cap IndexAmerican Century Real Estate
Vanguard Small Cap Index
Growth
Mainstay
T Rowe Price New Era
Morgan Stanley
Baron Growth
Neuberger Berman Genesis