12_PortfolioMgt

12_PortfolioMgt - Asset Allocation Decision: - Individual...

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Asset Allocation Decision: - Individual Investor Life Cycle: o Preliminaries: No serious investment plan should be started until a potential investor has adequate income to cover living expenses and has a safety net should the unexpected occur. This includes having insurance and cash reserve. o Life Cycle Net Worth and Investment Strategies: Accumulation Phase, Consolidation Phase, Spending/Gifting Phase o Life Cycle Investment Goals - Portfolio Management Process: o Policy Statement: Focus on investor’s short-term and long-term needs, familiarity with capital market history, and expectations. o Examine current and projected financial, economic, political and social conditions: Focus on short-term and intermediate-term expected conditions to use in constructing a specific portfolio. o Implement the plan by constructing a portfolio: Meet the investor’s needs at minimum risk levels. o Feedback loop: Monitor and update investor’s needs, environmental conditions and evaluate portfolio performance. - Need for a Policy Statement: While it does not guarantee investment success, a policy statement will provide discipline for the investment process and reduce the possibility of making hasty, inappropriate decisions o Understand and articulate realistic investor goals o Standards for evaluating portfolio performance: Policy statement must provide an objective standard. The policy statement will typically include a benchmark portfolio, or comparison standard. The risk of the benchmark, and the assets included in the benchmark, should agree with the client’s risk preference and investment needs. o
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12_PortfolioMgt - Asset Allocation Decision: - Individual...

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