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