Download - How to Build an Investment Portfolio
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Finding Your Way Through the Maze of Investing
How To Build Your Portfolio: Insights into Amway RSP Stock Funds
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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.
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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
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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).
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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
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Correlation: The measure of how two securities move in relation to each other.
How To Build Your Portfolio
Negativ
e
Positive +1-1
0
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How To Build Your Portfolio
Correlation:The measure of how two securities move in relation to each other.
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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
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How To Build Your Portfolio
• Asset Allocation across the asset classes will reduce positive correlation
Stocks
Bonds
Cash
Asset Classes
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• 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
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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
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How To Build Your Portfolio
70%
20%
10%
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How To Build Your Portfolio
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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
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How To Build Your Portfolio
Portfolio construction: Methods• At one extreme is
the “returns chaser”
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How To Build Your Portfolio
• At other extreme is the professional investment manager
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How To Build Your Portfolio
• Your method should be in-between
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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
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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
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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)
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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
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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
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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
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How To Build Your Portfolio
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How To Build Your Portfolio
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How To Build Your Portfolio
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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
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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
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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
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How To Build Your Portfolio
Portfolio construction• Wait. Why a
portfolio? Why not just 1 great fund?
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How To Build Your PortfolioCommon sense tells us that your likelihood of experiencing loss is greater if you are invested in just 1 fund.
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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