how to build an investment portfolio

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Finding Your Way Through the Maze of Investing How To Build Your Portfolio: Insights into Amway RSP Stock Funds

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Page 1: How to Build an Investment Portfolio

Finding Your Way Through the Maze of Investing

How To Build Your Portfolio: Insights into Amway RSP Stock Funds

Page 2: How to Build an Investment Portfolio

How To Build Your Portfolio

Our goal is to provide you with an understanding of how to manage portfolio risks – the most important aspect of an effective portfolio.

Page 3: How to Build an Investment Portfolio

How To Build Your Portfolio

Portfolio:a collection of investments held by an institution or a private individual

Mutual Fund A

Mutual Fund B

Mutual Fund C

Page 4: How to Build an Investment Portfolio

How To Build Your Portfolio

• RISK: the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).

Page 5: How to Build an Investment Portfolio

How To Build Your Portfolio

• RISK: the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).– All investments are risky– Combining different investments can increase or

decrease overall risk– You cannot manage returns; you CAN manage

risk

Page 6: How to Build an Investment Portfolio

Correlation: The measure of how two securities move in relation to each other.

How To Build Your Portfolio

Negativ

e

Positive +1-1

0

Page 7: How to Build an Investment Portfolio

How To Build Your Portfolio

Correlation:The measure of how two securities move in relation to each other.

Page 8: How to Build an Investment Portfolio

How To Build Your Portfolio

Asset Class:A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.

• Stocks• Bonds• Cash

Stocks

Bonds

Cash

Asset Classes

Page 9: How to Build an Investment Portfolio

How To Build Your Portfolio

• Asset Allocation across the asset classes will reduce positive correlation

Stocks

Bonds

Cash

Asset Classes

Page 10: How to Build an Investment Portfolio

• Systematic Risk– Market Risk– Cannot be eliminated– Eg. Recession, war, elections

• Unsystematic Risk– Specific risk– Can be reduced/eliminated– Eg. Worker strike, bankruptcy,

supply chain interruption

How To Build Your Portfolio

Page 11: How to Build an Investment Portfolio

How to Build Your Portfolio

Domestic Stocks

Corp Bonds

US Treasury Bonds

Intl Stocks

Cash

Chocolate

other

Asset Classes have Categories• Stocks

– Domestic• Large Cap• Mid Cap• Small Cap

– International• Large Cap• Emerging Nations

• Bonds– US Treasury Bonds

• 10 year• 30 year• TIPS

– US Corporate Bonds• Investment Grade• High Yield

– International Bonds

Diversification:Mix a variety of investments across the Asset Class Categories to eliminate unsystematic risk

Page 12: How to Build an Investment Portfolio

How To Build Your Portfolio

70%

20%

10%

Page 13: How to Build an Investment Portfolio

How To Build Your Portfolio

Page 14: How to Build an Investment Portfolio

How To Build Your Portfolio

Small Cap

Mid Cap

Large Cap

Value

Alps/WMC

Hotchkis & Wiley

Blend

Spartan 500

Vanguard Health Care

Vanguard Mid Cap IndexAmerican Century Real Estate

Vanguard Small Cap Index

Growth

Mainstay

T Rowe Price New Era

Morgan Stanley

Baron Growth

Neuberger Berman Genesis

Page 15: How to Build an Investment Portfolio

How To Build Your Portfolio

Portfolio construction: Methods• At one extreme is

the “returns chaser”

Page 16: How to Build an Investment Portfolio

How To Build Your Portfolio

• At other extreme is the professional investment manager

Page 17: How to Build an Investment Portfolio

How To Build Your Portfolio

• Your method should be in-between

Page 18: How to Build an Investment Portfolio

How To Build Your Portfolio

• Create and follow a personal asset allocation policy

• eg.– Stocks : 45-65%– Bonds : 30-50%– Cash : 5-15%

Stocks

Bonds

Cash

Asset Classes

Page 19: How to Build an Investment Portfolio

How To Build Your Portfolio• Identify your personal risk profile: how

sensitive are you to losing money?

ConservativeAggressive

Moderate

20% 60% 100%

https://personal.vanguard.com/us/FundsInvQuestionnaire

Page 20: How to Build an Investment Portfolio

How To Build Your PortfolioAnd decide how much risk you can accept for your assets

4.29% -4.91%

6.73% -3.37%

13.85% -3.06%

One Month

Three Months

One Year

One Month

Three Months

One Year

Worst ReturnsBest Returns

8.24% -13.63%

14.23% -12.71%

27.18% -24.75%

One Month

Three Months

One Year

One Month

Three Months

One Year

Worst ReturnsBest Returns

14.25% -22.51%

23.34% -24.05%

41.27% -40.69%

One Month

Three Months

One Year

One Month

Three Months

One Year

Worst ReturnsBest Returns

Conservative Investors (20% Stock)

Moderate Investors (60% Stock)

Aggressive Investors (100% Stock)

Page 21: How to Build an Investment Portfolio

How To Build Your Portfolio

• Create and follow a personal asset allocation policy

• Identify Asset Allocation triggers (see Monitoring the Market seminar)

Stocks

Bonds

Cash

Asset Classes

Page 22: How to Build an Investment Portfolio

How to Build Your Portfolio

Domestic Stocks

Corp Bonds

US Treasury Bonds

Intl Stocks

Cash

Chocolate

other

• Create and follow a personal asset allocation policy

• Identify Asset Allocation triggers (see Monitoring the Market seminar)

• Reduce unsystematic risk through diversification

Diversification:Mix a variety of investments across the Asset Class Categories to eliminate unsystematic risk

Page 23: How to Build an Investment Portfolio

How To Build Your Portfolio

70%

20%

10%

Closet

indexing

Small Cap

Mid Cap

Large Cap

Value

Alps/WMC

Hotchkis & Wiley

Blend

Spartan 500

Vanguard Health Care

Vanguard Mid Cap IndexAmerican Century Real Estate

Vanguard Small Cap Index

Growth

Mainstay

T Rowe Price New Era

Morgan Stanley

Baron Growth

Neuberger Berman Genesis

Page 24: How to Build an Investment Portfolio

How To Build Your Portfolio

Page 25: How to Build an Investment Portfolio

How To Build Your Portfolio

Page 26: How to Build an Investment Portfolio

How To Build Your Portfolio

Page 27: How to Build an Investment Portfolio

How To Build Your Portfolio

• Summary– Match your personal risk preferences

• Conservative, Moderate, Aggressive

– Manage risk exposure by combination of investments• Asset Allocation• Diversification

– Closet indexing – investing the size and styles as they are represented in market; mimicking the market

– Know each fund’s risk and how it will effect the portfolio• Max & Min return swing

– Monitor - Triggers for adjusting allocation

Page 28: How to Build an Investment Portfolio

How To Build Your Portfolio

NEVER forget your focus!– Retirement is your end-

game• Retirement goals

– Focus on longer term• Investment horizon

– Stick with your Basic Plan• An Investment Policy

Statement helps you remember

Page 29: How to Build an Investment Portfolio

Thank YouSchedule your personal consultation now!

Visit http://amway.bemanaged.comContact us at (616) 871-0751 or (888) 738-8780

Large Cap

Mid Cap

Small Cap

Value

Alps/WMC

Hotchkis & Wiley

Blend

Spartan 500

Vanguard Health CareVanguard Mid Cap IndexAmerican Century Real Estate

Vanguard Small Cap

Index

Growth

Mainstay

T Rowe Price New EraMorgan Stanley

Baron Growth

Neuberger Berman Genesis

Page 30: How to Build an Investment Portfolio
Page 31: How to Build an Investment Portfolio

How To Build Your Portfolio

Portfolio construction• Wait. Why a

portfolio? Why not just 1 great fund?

Page 32: How to Build an Investment Portfolio

How To Build Your PortfolioCommon sense tells us that your likelihood of experiencing loss is greater if you are invested in just 1 fund.

Page 33: How to Build an Investment Portfolio

How To Build Your Portfolio

Small Cap

Mid Cap

Large Cap

Value

Alps/WMC

Hotchkis & Wiley

Blend

Spartan 500

Vanguard Health Care

Vanguard Mid Cap IndexAmerican Century Real Estate

Vanguard Small Cap Index

Growth

Mainstay

T Rowe Price New Era

Morgan Stanley

Baron Growth

Neuberger Berman Genesis