1. Finding Your Way Through the Maze
of Investing
How To Build Your Portfolio:
Insights into Amway RSP Stock Funds
2. 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.
3. How To Build Your Portfolio
Portfolio:
a collection of investments
held by an institution or a
Mutual
private individual Fund C
Mutual
Fund B
Mutual
Fund A
4. 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).
5. 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
6. How To Build Your Portfolio
Correlation: The measure of how two securities
move in relation to each other.
0
-1 Negative Positive +1
7. How To Build Your Portfolio
Correlation:
The measure of how
two securities move
in relation to each
other.
8. How To Build Your Portfolio
Asset Class: Asset Classes
A group of securities that exhibit
similar characteristics, behave
similarly in the marketplace, and
are subject to the same laws and
Cash Stocks
regulations.
• Stocks
• Bonds
Bonds
• Cash
9. How To Build Your Portfolio
Asset Classes
• Asset Allocation across
the asset classes will
reduce positive
correlation Cash Stocks
Bonds
10. How To Build Your 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
11. How to Build Your Portfolio
Asset Classes have Categories
• Stocks
– Domestic
• Large Cap Domestic
Intl Stocks
Stocks
• Mid Cap
Cash
• Small Cap
– International Chocolate
US
• Large Cap Treasury
Corp Bonds
• Emerging Nations Bonds
• Bonds
– US Treasury Bonds other
• 10 year
• 30 year
• TIPS Diversification:
– US Corporate Bonds Mix a variety of investments across the Asset
• Investment Grade Class Categories to eliminate unsystematic risk
• High Yield
– International Bonds
14. How To Build Your Portfolio
Value Blend Growth
Spartan 500 Mainstay
Large Cap Alps/WMC
Vanguard T Rowe Price
Health Care New Era
Vanguard Mid
Morgan
Cap Index
Hotchkis & Stanley
Mid Cap Wiley
American
Century Real
Baron Growth
Estate
Vanguard Neuberger
Small Cap Berman
Small Cap Index Genesis
15. How To Build Your Portfolio
Portfolio
construction:
Methods
• At one extreme is
the
“returns chaser”
16. How To Build Your Portfolio
• At other extreme is the
professional investment
manager
17. How To Build Your Portfolio
• Your method should be in-between
18. How To Build Your Portfolio
• Create and follow a Asset Classes
personal asset allocation
policy
• eg.
– Stocks : 45-65% Cash Stocks
– Bonds : 30-50%
– Cash : 5-15%
Bonds
19. How To Build Your Portfolio
• Identify your personal risk profile: how
sensitive are you to losing money?
20% 60% 100%
Conservative
Aggressive
Moderate
https://personal.vanguard.com/us/FundsInvQuestionnaire
20. How To Build Your Portfolio
And decide how much risk you can accept for your assets
Conservative Investors Best Returns Worst Returns
(20% Stock)
One Month 4.29% One Month -4.91%
Three Months 6.73% Three Months -3.37%
One Year 13.85% One Year -3.06%
Moderate Investors Best Returns Worst Returns
(60% Stock)
One Month 8.24% One Month -13.63%
Three Months 14.23% Three Months -12.71%
One Year 27.18% One Year -24.75%
Aggressive Investors Best Returns Worst Returns
(100% Stock)
One Month 14.25% One Month -22.51%
Three Months 23.34% Three Months -24.05%
One Year 41.27% One Year -40.69%
21. How To Build Your Portfolio
• Create and follow a Asset Classes
personal asset allocation
policy
• Identify Asset Allocation
triggers (see Monitoring Cash Stocks
the Market seminar)
Bonds
22. How to Build Your Portfolio
• Create and follow a
personal asset Domestic
Intl Stocks
allocation policy Stocks
Cash
• Identify Asset US
Chocolate
Allocation triggers Corp
Treasury
Bonds
(see Monitoring the Bonds
Market seminar) other
• Reduce Diversification:
unsystematic risk Mix a variety of investments across the Asset
Class Categories to eliminate unsystematic risk
through
diversification
23. How To Build Your Portfolio
Value Blend Growth
Spartan 500 Mainstay
70% Large Cap Alps/WMC
Vanguard
Health Care
T Rowe Price
New Era
Vanguard Mid
Morgan
Cap Index
Hotchkis & Stanley
20% Mid Cap Wiley
American
Century Real
Baron Growth
Estate
Vanguard Neuberger
10% Small Cap Small Cap
Index
Berman
Genesis
27. 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
28. 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
29. Thank You
Schedule your personal consultation now!
Visit http://amway.bemanaged.com
Contact us at (616) 871-0751 or (888) 738-8780
Large Cap
Mid Cap
Small Cap
30.
31. How To Build Your Portfolio
Portfolio construction
• Wait. Why a
portfolio? Why not
just 1 great fund?
32. How To Build Your Portfolio
Common sense tells us that your likelihood of experiencing
loss is greater if you are invested in just 1 fund.
33. How To Build Your Portfolio
Large Cap
Mid Cap
Small Cap
