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Reach Your Financial Goals with the
Right Investment Portfolio

Isaac Schweigert,  CFA
Navid Boostani,  CFA,  CIM Updated:...
Understanding Risk and Rewad

” You have to go out on a limb
sometime because that's where the
fruit is” — Will Rogers
But...
Risk & Return Trade Off

_ _ High Risk /  High Potential Return
Higher returns come with the 

risk of higher losses

HGIH...
Risk,  Return,  and Asset Classes

Different assets have different risk and return characteritics

Z

CK

.3 .  ’ Emerging...
Diversification

. / You can increase investment returns without taking more risks
by diversifying across asset classes
,  ...
The Optimal Asset Allocation

Portfolios that maximize return for a given level of risk are optimal

Practitioners find th...
The Optimal Asset Allocation

Portfolios that maximize return for a given level of risk are optimal

Practitioners find th...
The Optimal Asset Mix

Collectively,  these optimal portfolios form the Efficient Frontier

    
   
  

RETURN

Any portf...
The Optimal Asset Mix

Optimal asset mix for different risk level for our 7—asset class portfolio are
shown below. 

1.0

...
How Much Risk Should You Take

To figure out what portfolio to invest in,  you also need to determine how much
risk you sh...
How Much Risk Should You Take

Risk Taking Appetite
Confldeh

V How you react to monetary loss
F How you view risk in every...
How Much Risk Should You Take

Risk Taking Ability
Con§den

0 Your investment timeframe
0 The consequences of an investmen...
How to Find Your Overall Risk Score

No matter how much appetite you have for risk,  never take more risk than
your abilit...
How to Find Your Overall Risk Score

If you are a conservative person,  you'd likely need to take more risk than
your appe...
Sample Portfolios
Meet Shannon Portfolio

Profi| e:30-year Old Scientist Recommended Risk Level:  1 out of1O
Income:  $80,0...
Meetjohn

 

16 |  modernadvisor. ca

Sample Portfolios

Portfolio

Profi| e:25-year old engineer
Income:  $70,000
Risk App...
Meet Eli

Sample Portfolios

Profi| e:39-year old lawyer
Income:  $130,000

Risk Appetite:  High
Timeframe:  25 years
Goalz...
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Reach Your Financial Goals with the Right Investment Portfolio

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An easy-to-follow guide for choosing a diversified investment portfolio that meets your risk and reward objectives. The examples given are tailored to Canadian investors.

Publicada em: Economia e finanças
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Reach Your Financial Goals with the Right Investment Portfolio

  1. 1. Reach Your Financial Goals with the Right Investment Portfolio Isaac Schweigert, CFA Navid Boostani, CFA, CIM Updated: November 2015
  2. 2. Understanding Risk and Rewad ” You have to go out on a limb sometime because that's where the fruit is” — Will Rogers But beware. .. If you go out on a limb and the branch breaks, you will get hurt! 2 | modernadvisor. ca Eflmodem/ '
  3. 3. Risk & Return Trade Off _ _ High Risk / High Potential Return Higher returns come with the risk of higher losses HGIHER RETURN 2 Low Risk / Low Return r’V v HIGHER RISK 3 | modernadvisonca air Modern/ i
  4. 4. Risk, Return, and Asset Classes Different assets have different risk and return characteritics Z CK .3 . ’ Emerging Market g Stocks * Canadian Stocks Emerging Market Real Estate Bonds , ' Bonds US Stocks Other Developed World Stocks Short-term Bonds i Cash > I RISK ‘ 4 | modernadvisor. ca .3? Modern;
  5. 5. Diversification . / You can increase investment returns without taking more risks by diversifying across asset classes , Diversified Portfolio Higher return than Canadian Stocks but 4 same volatility _ » Emerging Market E Stocks 3 5 ~ ~ 0: Canadian Stocks Emerging Market Real Estate Bonds Bonds US Stocks Other Developed World Stocks Short—term Bonds 2 r > I RISK ‘ 5 | modernadvisor. ca .3? Modern;
  6. 6. The Optimal Asset Allocation Portfolios that maximize return for a given level of risk are optimal Practitioners find them using a mathematical model called Mean Variance Optimization‘ ' Emerging Market 5 Stocks 3 . i— LIJ Q: ‘ Canadian Stocks Emerging Market Real Estate Bonds Bonds US Stocks Other Developed World Stocks Short—term Bonds 2 r > I Risk L 6 | modernadvisor. ca I; pi‘. Modem;
  7. 7. The Optimal Asset Allocation Portfolios that maximize return for a given level of risk are optimal Practitioners find them using a mathematical model called Mean Variance Optimization‘ ' Emerging Market 5 Stocks 3 . i— LIJ Q: ‘ Canadian Stocks Emerging Market Real Estate Bonds Bonds US Stocks Other Developed World Stocks Short—term Bonds 2 r > I Risk L 7 | modernadvisor. ca I; pi‘. Modem;
  8. 8. The Optimal Asset Mix Collectively, these optimal portfolios form the Efficient Frontier RETURN Any portfolio on the Efficient Frontier Efficient Frontier line is optimal . Emerging Market Stocks . Canadian Stocks merging Market . Real Estate Bonds . US Stocks 0 O Other Developed World Stocks Short—term Bonds
  9. 9. The Optimal Asset Mix Optimal asset mix for different risk level for our 7—asset class portfolio are shown below. 1.0 Canadian Equities US Equities I International Equities I Emerging Market Equities I Canadian Bonds I Emerging Market Bonds I REITs 0.9 0.8 0.7 0.8 0.5 Weight 0.4 0.3 0.2 0.1 0 1 2 3 4 5 6 7 8 9 10 9 | modernadvisor. ca . |i' Model-nAdVisor
  10. 10. How Much Risk Should You Take To figure out what portfolio to invest in, you also need to determine how much risk you should take. You should consider: @ Your Appetite to Take Risk A measure of how much volatility you can stomach without making emotional decisions ®Your Ability to Take Risk A measure of appropriate investment risk for your timeframe and financial situation 10 | modernadvisor. ca Li'lModem, L
  11. 11. How Much Risk Should You Take Risk Taking Appetite Confldeh V How you react to monetary loss F How you view risk in everyday life r Your desire for outsized financial gains Rate your risk appetite from 1 to 10 (there are online questionnaires that can do this for you) 1 2 3 4 5 6 7 8 9 10 Lowest Highest Risk Appetite Risk Appetite 11 | modernadvisor. ca Li'lModem, L
  12. 12. How Much Risk Should You Take Risk Taking Ability Con§den 0 Your investment timeframe 0 The consequences of an investment loss 0 Your ability to replace investment loss Rate your risk—taking ability from 1 to 10 1 2 3 4 5 6 7 8 9 10 Lowest Highest Risktaking Ability Risk-taking Ability
  13. 13. How to Find Your Overall Risk Score No matter how much appetite you have for risk, never take more risk than your ability score suggests. Example: Risk Appetite i—i? 1 2 3 4 5 6 7 8 9 10 O1 G7 I 00 ‘D A O 13 | modernadvisor. ca Li'lModem, L
  14. 14. How to Find Your Overall Risk Score If you are a conservative person, you'd likely need to take more risk than your appetite score suggests in order to reach your long—term goals. In these situations, go with the average of appetite and ability scores. Example: Risk Appetite i—i—Qj 1 2 3 4 5 6 7 8 9 10 O1 0‘) I 00 ‘D A O 14 | modernadvisor. ca Li'lModem, L
  15. 15. Sample Portfolios Meet Shannon Portfolio Profi| e:30-year Old Scientist Recommended Risk Level: 1 out of1O Income: $80,000 Risk Appetite: High Timeframe: Less than 3 years Goal: Save for a trip :1 Canadian Equities : | US Equities _ Canadian Bonds _ Emerging Market Bonds 15 | modernadvisor. ca E_iModern.
  16. 16. Meetjohn 16 | modernadvisor. ca Sample Portfolios Portfolio Profi| e:25-year old engineer Income: $70,000 Risk Appetite: Moderate Recommended Risk Level: 5 out of1O Canadian Equities US Equities International Equities Emerging Market Equities Canadian Bonds Emerging Market Bonds RE| Ts Timeframe: 5 years Goalzsaving to purchase a condo
  17. 17. Meet Eli Sample Portfolios Profi| e:39-year old lawyer Income: $130,000 Risk Appetite: High Timeframe: 25 years Goalzsaving for retirement Portfolio Recommended Risk Level: 10 out of1O I: Canadian Equities I US Equities I International Equities I Emerging Market Equities I Canadian Bonds I Emerging Market Bonds I RE| Ts

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