Question

Construct a portfolio taking into account the macro-economic outlook for whatever country and currency you invest in . Your portfolio must reflect the following factors. Why you prefer managed funds or exchange-traded funds, or a mixture of the two. For this exercise you can choose funds - of any type, but funds (not bonds, not stocks -except via funds). Describe the funds. Include a mention of costs and why you like the funds. At least 5 -7funds altogether.

You also need to match your asset allocation with your risk profile. You may add a structured product to your portfolio.Reference-Portable Private Banker byDr David Costa

Answer 1

In itoday's ifinancial imarketplace, ia iwell-maintained iportfolio iis ivital ito iany iinvestor's isuccess. iAs ian iindividual iinvestor, iyou ineed ito iknow ihow ito idetermine ian iasset iallocation ithat ibest iconforms ito iyour ipersonal iinvestment igoals iand irisk itolerance. iIn iother iwords, iyour iportfolio ishould imeet iyour ifuture icapital irequirements iand igive iyou ipeace iof imind iwhile idoing iso. iInvestors ican iconstruct iportfolios ialigned ito iinvestment istrategies iby ifollowing ia isystematic iapproach. iHere iare isome iessential isteps ifor itaking isuch ian iapproach.

1. Overall, ia iwell-diversified iportfolio iis iyour ibest ibet ifor ithe iconsistent ilong-term igrowth iof iyour iinvestments.

2. First, idetermine ithe iappropriate iasset iallocation ifor iyour iinvestment igoals iand irisk itolerance.

3. Second, ipick ithe iindividual iassets ifor iyour iportfolio.

4. Third, imonitor ithe idiversification iof iyour iportfolio, ichecking ito isee ihow iweightings ihave ichanged.

5. Make iadjustments iwhen inecessary, ideciding iwhich iunderweighted isecurities ito ibuy iwith ithe iproceeds ifrom iselling ithe ioverweighed isecurities.

Step i1: iDetermining iYour iAppropriate iAsset iAllocation

Ascertaining iyour iindividual ifinancial isituation iand igoals iis ithe ifirst itask iin iconstructing ia iportfolio. iImportant iitems ito iconsider iare iage iand ihow imuch itime iyou ihave ito igrow iyour iinvestments, ias iwell ias ithe iamount iof icapital ito iinvest iand ifuture iincome ineeds. iAn iunmarried, i22-year-old icollege igraduate ijust ibeginning ihis ior iher icareer ineeds ia idifferent iinvestment istrategy ithan ia i55-year-old imarried iperson iexpecting ito ihelp ipay ifor ia ichild's icollege ieducation iand iretire iin ithe inext idecade.

A isecond ifactor ito iconsider iis iyour ipersonality iand irisk itolerance. iAre iyou iwilling ito ihazard ithe ipotential iloss iof isome imoney ifor ithe ipossibility iof igreater ireturns? iEveryone iwould ilike ito ireap ihigh ireturns iyear iafter iyear, ibut iif iyou ican't isleep iat inight iwhen iyour iinvestments itake ia ishort-term idrop, ichances iare ithe ihigh ireturns ifrom ithose ikinds iof iassets iare inot iworth ithe istress.

Clarifying iyour icurrent isituation, iyour ifuture ineeds ifor icapital, iand iyour irisk itolerance iwill idetermine ihow iyour iinvestments ishould ibe iallocated iamong idifferent iasset iclasses. iThe ipossibility iof igreater ireturns icomes iat ithe iexpense iof igreater irisk iof ilosses i(a iprinciple iknown ias ithe irisk/return itradeoff). iYou idon't iwant ito ieliminate irisk iso imuch ias ioptimize iit ifor iyour iindividual isituation iand ilifestyle. iFor iexample, ithe iyoung iperson iwho iwon't ihave ito idepend ion ihis ior iher iinvestments ifor iincome ican iafford ito itake igreater irisks iin ithe iquest ifor ihigh ireturns. iOn ithe iother ihand, ithe iperson inearing iretirement ineeds ito ifocus ion iprotecting ihis ior iher iassets iand idrawing iincome ifrom ithese iassets iin ia itax-efficient imanner.

Step i2: iAchieving ithe iPortfolio

Once iyou've idetermined ithe iright iasset iallocation, iyou ineed ito idivide iyour icapital ibetween ithe iappropriate iasset iclasses. iOn ia ibasic ilevel, ithis iis inot idifficult: iequities iare iequities iand ibonds iare ibonds.

But iyou ican ifurther ibreak idown ithe idifferent iasset iclasses iinto isubclasses, iwhich ialso ihave idifferent irisks iand ipotential ireturns. iFor iexample, ian iinvestor imight idivide ithe iportfolio's iequity iportion ibetween idifferent iindustrial isectors iand icompanies iof idifferent imarket icapitalizations, iand ibetween idomestic iand iforeign istocks. iThe ibond iportion imight ibe iallocated ibetween ithose ithat iare ishort-term iand ilong-term, igovernment idebt iversus icorporate idebt iand iso iforth.

Step i3: iReassessing iPortfolio iWeightings

Once iyou ihave ian iestablished iportfolio, iyou ineed ito ianalyze iand irebalance iit iperiodically, ibecause ichanges iin iprice imovements imay icause iyour iinitial iweightings ito ichange. iTo iassess iyour iportfolio's iactual iasset iallocation, iquantitatively icategorize ithe iinvestments iand idetermine itheir ivalues' iproportion ito ithe iwhole.

The iother ifactors ithat iare ilikely ito ialter iover itime iare iyour icurrent ifinancial isituation, ifuture ineeds, iand irisk itolerance. iIf ithese ithings ichange, iyou imay ineed ito iadjust iyour iportfolio iaccordingly. iIf iyour irisk itolerance ihas idropped, iyou imay ineed ito ireduce ithe inumber iof iequities iheld. iOr iperhaps iyou're inow iready ito itake ion igreater irisk iand iyour iasset iallocation irequires ithat ia ismall iproportion iof iyour iassets ibe iheld iin imore ivolatile ismall-cap istocks.

Step i4: iRebalancing iStrategically

Once iyou ihave idetermined iwhich isecurities iyou ineed ito ireduce iand iby ihow imuch, idecide iwhich iunderweighted isecurities iyou iwill ibuy iwith ithe iproceeds ifrom iselling ithe ioverweighed isecurities. iIn ithis icase, iit imight ibe imore ibeneficial ito isimply inot icontribute iany inew ifunds ito ithat iasset iclass iin ithe ifuture iwhile icontinuing ito icontribute ito iother iasset iclasses. iThis iwill ireduce iyour igrowth istocks' iweighting iin iyour iportfolio iover itime iwithout iincurring icapital igains itaxes.

At ithe isame itime, ialways iconsider ithe ioutlook iof iyour isecurities. iIf iyou isuspect ithat ithose isame ioverweighed igrowth istocks iare iominously iready ito ifall, iyou imay iwant ito isell iin ispite iof ithe itax iimplications. iAnalyst iopinions iand iresearch ireports ican ibe iuseful itools ito ihelp igauge ithe ioutlook ifor iyour iholdings. iAnd itax-loss iselling iis ia istrategy iyou ican iapply ito ireduce itax iimplications.

iTypes iof iInvestment iFund

An iinvestment ifund iis ia isupply iof icapital ibelonging ito inumerous iinvestors iused ito icollectively ipurchase isecurities iwhile ieach iinvestor iretains iownership iand icontrol iof ihis iown ishares. iAn iinvestment ifund iprovides ia ibroader iselection iof iinvestment iopportunities, igreater imanagement iexpertise, iand ilower iinvestment ifees ithan iinvestors imight ibe iable ito iobtain ion itheir iown. iTypes iof iinvestment ifunds iinclude imutual ifunds, iexchange-traded ifunds, imoney imarket ifunds, iand ihedge ifunds.

1. BREAKING iDOWN iInvestment iFund

With iinvestment ifunds, iindividual iinvestors ido inot imake idecisions iabout ihow ia ifund's iassets ishould ibe iinvested. iThey isimply ichoose ia ifund ibased ion iits igoals, irisk, ifees iand iother ifactors. iA ifund imanager ioversees ithe ifund iand idecides iwhich isecurities iit ishould ihold, iin iwhat iquantities iand iwhen ithe isecurities ishould ibe ibought iand isold. iAn iinvestment ifund ican ibe ibroad-based, isuch ias ian iindex ifund ithat itracks ithe iS&P i500, ior iit ican ibe itightly ifocused, isuch ias ian iETF ithat iinvests ionly iin ismall itechnology istocks.

While iinvestment ifunds iin ivarious iforms ihave ibeen iaround ifor imany iyears, ithe iMassachusetts iInvestors iTrust iFund iis igenerally iconsidered ithe ifirst iopen-end imutual ifund iin ithe iindustry. iThe ifund, iinvesting iin ia imix iof ilarge-cap istocks, ilaunched iin i1924.

2. Open-end ivs. iClosed-end

The imajority iof iinvestment ifund iassets ibelong ito iopen-end imutual ifunds. iThese ifunds iissue inew ishares ias iinvestors iadd imoney ito ithe ipool, iand iretire ishares ias iinvestors iredeem. iThese ifunds iare itypically ipriced ijust ionce iat ithe iend iof ithe itrading iday.

Closed-end ifunds itrade imore isimilarly ito istocks ithan iopen-end ifunds. iClosed-end ifunds iare imanaged iinvestment ifunds ithat iissue ia ifixed inumber iof ishares, iand itrade ion ian iexchange. iWhile ia inet iasset ivalue i(NAV) ifor ithe ifund iis icalculated, ithe ifund itrades ibased ion iinvestor isupply iand idemand. iTherefore, ia iclosed-end ifund imay itrade iat ia ipremium ior ia idiscount ito iits iNAV.

3. Emergence iof iETFs

Exchange-traded ifunds i(ETFs) iemerged ias ian ialternative ito imutual ifunds ifor itraders iwho iwanted imore iflexibility iwith itheir iinvestment ifunds. iSimilar ito iclosed-end ifunds, iETFs itrade ion iexchanges, iand iare ipriced iand iavailable ifor itrading ithroughout ithe ibusiness iday. iMany imutual ifunds, isuch ias ithe iVanguard i500 iIndex iFund, ihave iETF icounterparts. iThe iVanguard iS&P i500 iETF iis iessentially ithe isame ifund, ibut icame ito ibe ibought iand isold iintraday. iETFs ifrequently ihave ithe iadditional iadvantage iof islightly ilower iexpense iratios ithan itheir imutual ifund iequal.

4. Investment iFunds: iHedge iFunds

A ihedge ifund iis ian iinvestment itype ithat iis idistinct ifrom imutual ifunds ior iETFs. iThis ifund iis ian iactively imanaged ifund imade iavailable ito iaccredited iinvestors. iA ihedge ifund ifaces iless ifederal iregulation iand iis itherefore iable ito iinvest iin ia ivariety iof iasset iclasses iusing ia iwide irange iof istrategies. iFor iexample, ia ihedge ifind imight ipairs istocks iit iwants ito ishort i(bet iwill idecrease) iwith istocks iit iexpects ito igo iup iin iorder ito idecrease ithe ipotential ifor iloss.

Hedge ifunds ialso itend ito iinvest iin iriskier iassets iin iaddition ito istocks, ibonds, iETFs, icommodities iand ialternative iassets. iThese iinclude iderivatives isuch ias ifutures iand ioptions ithat imay ialso ibe ipurchased iwith ileverage, ior iborrowed imoney.

Mutual iFunds

Mutual ifunds itypically icome iwith ia ihigher iminimum iinvestment irequirement ithan iETFs. iThose iminimums ican ivary idepending ion ithe itype iof ifund iand icompany. iFor iexample, ithe iVanguard i500 iIndex iInvestor iFund irequires ia i$3,000 iminimum iinvestment, iwhile iThe iGrowth iFund iof iAmerica ioffered iby iAmerican iFunds irequires ia i$250 iinitial ideposit

Many imutual ifunds iare iactively imanaged iby ia ifund imanager ior iteam imaking idecisions ito ibuy iand isell istocks ior iother isecurities iwithin ithat ifund iin iorder ito ibeat ithe imarket iand ihelp itheir iinvestors iprofit. iThese ifunds iusually icome iat ia ihigher icost isince ithey irequire ia ilot imore itime, ieffort, iand imanpower.

Purchases iand isales iof imutual ifunds itake iplace idirectly ibetween iinvestors iand ithe ifund. iThe iprice iof ithe ifund iis inot idetermined iuntil ithe iend iof ithe ibusiness iday iwhen inet iasset ivalue i(NAV) iis idetermined.

There iare itwo ilegal iclassifications ifor imutual ifunds:

1. Open-Ended iFunds. iThese ifunds idominate ithe imutual ifund imarketplace iin ivolume iand iassets iunder imanagement. iWith iopen-ended ifunds, ithe ipurchase iand isale iof ifund ishares itake iplace idirectly ibetween iinvestors iand ithe ifund icompany. iThere's ino ilimit ito ithe inumber iof ishares ithe ifund ican iissue. iSo, ias imore iinvestors ibuy iinto