Question

Investing (ONE PAGE FOR TWO PARTS)

For this assignment, assume that you have $10,000 to invest. Using the internet, newspapers, investing chapter presentation materials or other sources for information, select at least 2 investments, starting on any date between Jan 21 – Feb 1. You may pick any investment instruments you wish including GICs, stocks (equities), bonds, mutual funds, gold, foreign exchange futures, keeping the funds under your mattress, or any other legitimate investment as long as there are at least *TWO* different types. In other words, don’t pick 2 stocks, 2 mutual funds, or 2 GICs. If you wish, you may also “buy” and “sell” during the period to change what investments you hold, but if you do, assume a $10 transaction fee and include the detail. This is a learning exercise, so grading is based on what you think happened and what you learned. You are *NOT* being graded on whether your investments made or lost money, rather on what you learned in the process. The assignment is worth 15% of your course mark, so invest you time accordingly.

The assignment is in two parts:

First part is your starting position. Hand in on paper (one-page maximum, less is more) in the February 5 or 6 class:
1. What is your investing objective?
2. List your original investments, amount and date “bought”, and your reasons as to why each was chosen.

Second part is your ending position. Also hand in on paper (one page maximum please) in the April 2 or 3 class: Re-print the first part and add to it the following:
3. Value of investments on March 25.
4. How did your investments perform against your expectations and why do you think that happened?5. With what you’ve seen and learned in class, what investment strategy would you use in the future? Include your earlier answers to questions 1 and 2.

As a rough example (feel free to use a better or more appropriate format):
1. My investing objective is ... (include more than : “to make money” – discuss risk, why you chose the instruments you did, etc)
2. Starting Investments

Investment	Date “bought”	Amount “bought”	Why Chosen
Stock ABC	Feb 12	$5000 (400 shares @ 12.50)	Industry sector is due for a big gain because (insert good reason)...
Bond XYZ	Feb 12	$2500 (50 @ 50)	Should have big gain as Company ready to (insert your rationale)...
Gold	Feb 12	$2500 (2 oz @ 1250)	Should have big gain because (insert your rationale)...

3. Investments at end of period

Investment	Value on Apr 9	Performance (end - start)	What caused the change in value?
Stock ABC	$4900	-$100 (share value 12.25)	Explain what you think happened: e.g. Stock market went down (why?); industry sector earning below projections (why?)
Bond XYZ	$2505	+$5 (bond sell value 50.10)	Didn’t lose, but not the gain expected because of (insert why you think it happened) ...
Gold	$2508	+$8 (1254/oz)	Slight gain but not as expected because (insert why you think it happened)...
Gain / Loss		-$87

4. My first investment gained/lost because of ... The second...

5. When I started, my strategy was to (discuss strategy and risks).... What I would do differently next time is ... and this is why: ...

Answer 1

Before answering question, lets setup a scenario - you are looking for a learning out of overall situation (refer last para).

1. Investment objective - With portfolio of $10,000, I wish to grow my portfolio with stable returns and optimum risk. (for understanding - what we are saying is return is not the only objective here. We will look at returns but also risk associated with it. This will help us to meet our financial goals with more certainty)

2. Original investment - Jan 25 to Feb 1

Investment	Date bought	Amount bought	Per unit Price	Reason
Mutual Fund	January 25th	$5000 (Balanced Mutual Fund)	$100 NAV (bought 50 units)	Balanced mutual funds are invested in equity and debt which helps to reduce volatility of returns and earn stable returns
Bonds	January 28th	$3000 (AAA rated or govt bonds)	$1000 Par (bought 3 bonds)	Safety of investment is equally important. This will help to earn fixed interest rate at regular intervals.
Equity	January 30th	$2000 (Large cap equity)	$50 (bought 40 shares)	Equity shares will help us to grow the portfolio over the period of time and earn higher returns.

3. Value of investment on March 25

Investment	Investment Value	Per unit price	Reason for change in value
Mutual Fund	$5100	$102 NAV ($102 * 50 units = $5100)	Mutual funds are dependent on market movement. As equity market was relatively stable for entire period, the growth achieved in portfolio was suitable.
Bonds	$3050	$1000 Par (Earned quarterly coupon)	Bonds are secure and safe investment, the returns in the form of coupon payment was earned over the period of time
Equity	$2100	$52.5 per share ($52.5 *40 = $2100)	Equity markets saw stable growth over the period of time. Overall market growth was around 5% during this period and the returns earned on large cap stock was in line with market.

4. Investment Performance: Overall on $10,000 invested amount, we earned $10,250 in 2 months. This is an expected as per investment objective. Considering, all investments have given positive returns with optimum risk we find this portfolio functioning as expected. Market during this period was stable and did not see any large movements, which is one of the reason for as expected performance of this portfolio. Over the period of time, I would like to monitor this portfolio and adjust based on return/risk expectations, investment objective and financial goals.

With this exercise, I learnt that every portfolio needs to have objective in place and the objective should be rational, realistic and achievable. Considering the objective, we should be able to quantify return and risk profile for portfolio. Post quantifying return & risk profile, we should be conscious of given asset classes based on market situation and investment performance. Lastly, we should always monitor the portfolio and if required re balance it to achieve desired objective. While re-balancing, transaction cost is an important consideration.

Note: I hope this answers your question, please feel free to write in comments in case of any further concerns.