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How to Build an Investment Portfolio

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How to Build an Investment Portfolio

  1. 1. Finding Your Way Through the Maze of Investing How To Build Your Portfolio: Insights into Amway RSP Stock Funds
  2. 2. How To Build Your PortfolioOur goal is to provide youwith an understanding ofhow to manage portfoliorisks – the most importantaspect of an effectiveportfolio.
  3. 3. How To Build Your PortfolioPortfolio:a collection of investmentsheld by an institution or a Mutualprivate individual Fund C Mutual Fund B Mutual Fund A
  4. 4. 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).
  5. 5. 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
  6. 6. How To Build Your PortfolioCorrelation: The measure of how two securitiesmove in relation to each other. 0 -1 Negative Positive +1
  7. 7. How To Build Your PortfolioCorrelation:The measure of howtwo securities movein relation to eachother.
  8. 8. How To Build Your PortfolioAsset Class: Asset ClassesA group of securities that exhibitsimilar characteristics, behavesimilarly in the marketplace, andare subject to the same laws and Cash Stocksregulations.• Stocks• Bonds Bonds• Cash
  9. 9. How To Build Your Portfolio Asset Classes• Asset Allocation across the asset classes will reduce positive correlation Cash Stocks Bonds
  10. 10. How To Build Your Portfolio• 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
  11. 11. How to Build Your PortfolioAsset Classes have Categories• Stocks – Domestic • Large Cap Domestic Intl Stocks Stocks • Mid Cap Cash • Small Cap – International Chocolate US • Large Cap Treasury Corp Bonds • Emerging Nations Bonds• Bonds – US Treasury Bonds other • 10 year • 30 year • TIPS Diversification: – US Corporate Bonds Mix a variety of investments across the Asset • Investment Grade Class Categories to eliminate unsystematic risk • High Yield – International Bonds
  12. 12. How To Build Your Portfolio70%20%10%
  13. 13. How To Build Your Portfolio
  14. 14. How To Build Your Portfolio Value Blend Growth Spartan 500 Mainstay Large Cap Alps/WMC Vanguard T Rowe Price Health Care New Era Vanguard Mid Morgan Cap Index Hotchkis & Stanley Mid Cap Wiley American Century Real Baron Growth Estate Vanguard Neuberger Small Cap Berman Small Cap Index Genesis
  15. 15. How To Build Your PortfolioPortfolioconstruction:Methods• At one extreme is the “returns chaser”
  16. 16. How To Build Your Portfolio• At other extreme is the professional investment manager
  17. 17. How To Build Your Portfolio • Your method should be in-between
  18. 18. How To Build Your Portfolio• Create and follow a Asset Classes personal asset allocation policy• eg. – Stocks : 45-65% Cash Stocks – Bonds : 30-50% – Cash : 5-15% Bonds
  19. 19. How To Build Your Portfolio• Identify your personal risk profile: how sensitive are you to losing money? 20% 60% 100% Conservative Aggressive Moderate https://personal.vanguard.com/us/FundsInvQuestionnaire
  20. 20. How To Build Your PortfolioAnd decide how much risk you can accept for your assets Conservative Investors Best Returns Worst Returns (20% Stock) One Month 4.29% One Month -4.91% Three Months 6.73% Three Months -3.37% One Year 13.85% One Year -3.06% Moderate Investors Best Returns Worst Returns (60% Stock) One Month 8.24% One Month -13.63% Three Months 14.23% Three Months -12.71% One Year 27.18% One Year -24.75% Aggressive Investors Best Returns Worst Returns (100% Stock) One Month 14.25% One Month -22.51% Three Months 23.34% Three Months -24.05% One Year 41.27% One Year -40.69%
  21. 21. How To Build Your Portfolio• Create and follow a Asset Classes personal asset allocation policy• Identify Asset Allocation triggers (see Monitoring Cash Stocks the Market seminar) Bonds
  22. 22. How to Build Your Portfolio• Create and follow a personal asset Domestic Intl Stocks allocation policy Stocks Cash• Identify Asset US Chocolate Allocation triggers Corp Treasury Bonds (see Monitoring the Bonds Market seminar) other• Reduce Diversification: unsystematic risk Mix a variety of investments across the Asset Class Categories to eliminate unsystematic risk through diversification
  23. 23. How To Build Your Portfolio Value Blend Growth Spartan 500 Mainstay 70% Large Cap Alps/WMC Vanguard Health Care T Rowe Price New Era Vanguard Mid Morgan Cap Index Hotchkis & Stanley 20% Mid Cap Wiley American Century Real Baron Growth Estate Vanguard Neuberger 10% Small Cap Small Cap Index Berman Genesis
  24. 24. How To Build Your Portfolio
  25. 25. How To Build Your Portfolio
  26. 26. How To Build Your Portfolio
  27. 27. 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
  28. 28. How To Build Your PortfolioNEVER 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
  29. 29. Thank You Schedule your personal consultation now! Visit http://amway.bemanaged.comContact us at (616) 871-0751 or (888) 738-8780 Large Cap Mid Cap Small Cap
  30. 30. How To Build Your PortfolioPortfolio construction• Wait. Why a portfolio? Why not just 1 great fund?
  31. 31. How To Build Your PortfolioCommon sense tells us that your likelihood of experiencingloss is greater if you are invested in just 1 fund.
  32. 32. How To Build Your Portfolio Large Cap Mid Cap Small Cap

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