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  • 1. Islamic Wealth Planning and Management By Md. Shahedur Rahaman Chowdhury 1
  • 2. Topic Three:Wealth (asset) allocation process 2
  • 3. Systematic Risk Unsystematic Risk• The risk inherent to the entire • Company or industry specific market or entire market risk that is inherent in each segment. investment.• Also known as "un- • The amount of unsystematic diversifiable risk" or "market risk can be reduced through risk." appropriate diversification.• Systematic risk can be • Also known as "specific risk", mitigated only by being "diversifiable risk" or hedged. "residual risk". 3
  • 4. Degrees of Efficiency Strong Semi-strong Weak efficiency efficiency efficiencyThis is the strongest This form of EMH This type of EMHversion, which states implies that all public claims that all pastthat all information in a information is prices of a stock aremarket, whether public calculated into a reflected in todaysor private, is accounted stocks current share stock price. Therefore,for in a stock price. Not price. Neither technical analysiseven insider fundamental nor cannot be used toinformation could give technical analysis can predict and beat aan investor an be used to achieve market.advantage. superior gains. 4
  • 5. 5
  • 6. Investors should buy undervalued stocks and sell overvalued stocks Undervalued OvervaluedA financial security or other type of A stock with a current price that isinvestment that is selling for a not justified by its earnings outlookprice presumed to be below the or price/earnings (P/E) ratio and,investments true intrinsic value. A therefore, is expected to drop inundervalued stock can be price. Overvaluation may resultevaluated by looking at the from an emotional buying spurt,underlying companys financial which inflates the stocks marketstatements and analyzing its price, or from a deterioration in afundamentals, such as cash flow, companys financial strength.return on assets, profit retentionand capital management, todetermine said stocks intrinsicvalue. 6
  • 7. Portfolio• Risk• Return• Correlation 7
  • 8. Correlation :is a statistical measurement of the relationship between two variables. Possible correlations range from +1 to –1Zero correlation Positive Negative correlation correlationA zero correlation A correlation of +1 A correlation of –1indicates that there is indicates a perfect indicates a perfectno relationship positive correlation, negative correlation,between the variables meaning that both meaning that as one variables move in the variable goes up, the same direction other goes down. together. 8
  • 9. Efficient FrontierA line created from the risk-reward graph,comprised of optimal portfoliosThe optimal portfolios plotted along the curve havethe highest expected return possible for the givenamount of risk. 9
  • 10. The portfolio Allocation Scoring system (PASS)Total Score Money Market / Fixed Income/ Equities35 5/5/9029-34 10/10/9023-28 20/20/6017-22 30/30/4011-16 40/40/207-10 50/40/10 10
  • 11. EndQ&A 11