portfolio management

May 3, 2016 portfolio management

Name Naila Khan

M.COM IV

S2F14MCOM0035

Topic

Investors Lifecycle

Steps In Making Portfolio


Investors Lifecycle

Investor

Investor is a party that makes an investment into one or more categories of asset.Equity ,Debt ,Securities , real estate ,currency ,commodity, derivatives such as put and call option with the objective of making a profit.someone who provides a business with capital and someone who buys a stock are both investors since those in the secondary market are considered investor.

Investment

Any vehicle into which funds can be placed with the expectation that it will generate positive income and that its value will be preserved or increased

Investors lifecycle

Investor lifecycle contains different stages which shows the different phases of individual investor in his investment life, it also includes both short term andlong term investments.

Phases in investors life cycle

Early career Mid career Late career Retirement

Early Career

At the beginning of his carrier Individuals net worth is very negative or small Spending exceeds his income Individuals are willing to take higher risk in anticipations of high return


Mid career

Individuals are covered with insurance by this time Having tangible assets reasonable base of financial assets Individuals are willing to take higher risk for future high return Preservations of capital acquires some importance

Late career

No debt or mortgage on his income Risk exposure isreduced Saving level is high

Retirement

Investment become principal source of income Chances of unexpected ependitures Preservation of capital may become the overriding concern

Accumulation Phase

Early to middle years of carrer Attempting to satisfy intermediate and long term goals Net worth is usually small,debt may be heavy

Investors LifecycleAccumulation phase Consolidation phaseSpending phaseGifting phase


Long term investment horizon means usually willing to take moderately high risk in order to make above average returns

Consolidation Phase

Past career midpoint Have paid off much of their accumulated debt Earnings now exceed living expenses so the balance can be invested Time horizon is still long term so moderately high risk investmentsare still

attractive

Spending Phase

Usually begins at retirment Saving before prudent spending now Living expences covered by social security and retirement plans Changing emphasis toward preservation of capital but still want investment

values to keep pace with inflation

Gifting phase

Can be concurrent with spending phase If resources allow individual can now use excess assets to provide gifts to

other individual or organization Estate planning becomes important especially tax consideration

Steps in making investment portfolio

Successfully building and managing your financial portfolio (a collection of financial investments chosen by you or a financial advisor) means following these steps in asset allocation’s top-down, systematic approach:

Decide on your investment strategy.How conservative or aggressive should you be? For help, you may want to ask a financial advisor. Then commit to your strategy by writing it down in an Investment Policy Statement.

Figure out your asset allocation.


Your investment strategy informs your asset allocation. First, decide on the asset classes and subclasses you want to use (your asset baskets), which include cash, fixed income, equities, and alternatives (such as real estate and commodities). Then determine how big each of these baskets should be.

Fill your asset baskets.Start filling your baskets with specific investments — stocks and stock funds, bonds and bond funds, cash equivalents, real estate investment trusts (REITs), and commodity index funds. While filling your baskets, put higher-taxed (tax-inefficient) investments in tax-deferred accounts and lower-taxed (tax-efficient) assets in taxable accounts.

Rebalance opportunistically.Rebalance when some of your asset allocation baskets begin to overflow. Redistribute the excess to the baskets that have become underfilled. Systematically selling high and buying low will keep you true to your asset allocation and generate increased returns over the long haul.

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