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YU,3541B Fall 2008, Chapter#16, MutualFunds

YU,3541B Fall 2008, Chapter#16, MutualFunds -...

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Chapter #16-Investment Risk, Diversification, Asset Allocation and Mutual Funds Learning Objectives : Assess the different investment risks and learn how diversification can minimize the risks. Understand how diversification of the investment portfolio can be accomplished though mutual funds. Distinguish between the different types of mutual funds. Understand the advantages and disadvantages of investing in mutual funds. Understand the mutual fund fee structure. Understand the “Time in the Market” Concept. How to read and interpret Investment (Broker) Statements
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Investment Risks Default Risk Reinvestment Risk Inflation Risk Liquidity Risk Tax Risk Volatility Currency exchange Stock market risk Interest rate risk Economic risk Political risk
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Ways to Reduce Investment Risk SUMMARY Asset Allocation Structure a portfolio (Cash, Bonds & Stocks) to match the clients objectives and Risk Tolerance. Diversification Reduce the investment risk by spreading the investments across many asset categories, companies, and geographical locations. Stay Invested with a Strategy Time in the market, not timing the market
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4 Asset Allocation Within Investment Portfolios In order to understand what “Asset Allocation” is, we must first understand the different investment categories. An investment portfolio may include any or all of the following components: 1. Cash & Cash Equivalents (Money Market, T-Bills) 2. Fixed Income (Bonds, etc.) 3. Equity (Stocks) 4. Others (Mutual funds, Options & Futures). Your investment “asset allocation” simply describes how your portfolio is divided up between these categories.
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Asset Allocation An investment strategy that aims to balance risk and by apportioning a portfolio’s assets to different asset classes according to an individual’s goals, risk tolerance and investment horizon
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These Investments Can Be Placed into Various Account Types Non-Registered Single Joint Registered RSP Spousal RSP Locked In, LIRA, LRSP RIF Spousal Locked In, LIF, LRIF
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What Should My Portfolio Asset Allocation Be, And How Do I Pick The Specific Investments? Five steps to plan your investments 1. Set your goals What are my top financial goals? When do I hope to reach those goals? How much money do I want to save?
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