WM Lect 3 Wk 4_Asset allocation_Jessica

WM Lect 3 Wk 4_Asset allocation_Jessica - Wealth Management...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Wealth Management FINS2643 Lecture 3 Week 4 Asset Classes and Asset Allocation Lecture 3 Summary Investment Objectives Return expectation Short/Long term goals Constraints Income requirements Time horizon/liquidity Taxation consideration Risk tolerance 4 Sources of investment returns Market timing (active) Industry timing (active) Stock picking (active) Asset allocation strategies Static asset allocation o Buy low, sell high o Portfolio rebalancing Dynamic o Tactical Asset Allocation (economic and market cycles) o Article: Are Stocks Really Less Volatile in the Long Run (Pastor et al 2011) Stocks are often considered less volatile over long horizons due to mean reversion induced predictability However, studies show that mean reversion’s negative contribution to long- horizon variance is offset by: o Uncertainty about future returns o Uncertainty about current expected returns; and o Estimation risk Thus stocks are more volatile at long horizons than at short horizons, and may be less appealing to long horizon investors than conventional wisdom suggests… Homework Tutorial 4 JESSICA YANG 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 5 Question 2: Different ways to invest: Key asset classes Shares o Ownership in a corporation o Listed shares – liquidity and growth o Private equity (unlisted) – growth and diversification Fixed income securities o Bonds, preference shares, convertible securities o Income & maturity matching Derivatives o Derive value from underlying security or asset: Options, futures, CFDs o Form of leverage and ability to hedge risk, also useful for tax management Real estate o Residential, land, commercial o Occupancy, income, growth Commodities o Old and precious metals, gemstones, collectibles e.g. stamps o Diversification Managed funds o Unit trusts, cash trusts, allocated pensions, super funds o Access to other asset classes e.g. commercial properties & commodities Question 3: Discuss the various types of risks that impact on investments. 1) Exchange rate risk 2) Business risk 3) Financial risk 4) Purchasing power risk 5) Interest rate risk 6) Liquidity risk 7) Tax risk 8) Market risk 9) Event risk Question 4: What is the difference between holding period return and internal rate of return? The holding period return is the total return earned from holding an investment
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/02/2012 for the course FINS 2643 taught by Professor Fong during the Three '10 term at University of New South Wales.

Page1 / 6

WM Lect 3 Wk 4_Asset allocation_Jessica - Wealth Management...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online