Investment Management
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Lecturersresponse.docx
1. First step: What is the portfolio management process? Things to talk about. what does the role intake of managing a portfolio? First step: construct your policy statement (talking to the investor- This is what were a doing for you). “We are going to work with you to create objectives and goals and work towards them.” Step 2: come up with an investment strategy: Looking at the market and examining the current trend. Market research and be aware of what is wrong for the environment. As a role of the financial advisor, you carry out the research and make the best decisions to match the objectives and goals. Step 3: Put the policy together- based on the trends and factors, look at those and match it with what your objectives are. Lastly, make sure that the portfolio is performing. What this entails… principle agent relationship. You are the principle and I am the agent. You gave me the money and I spend it on your behalf. My duties also include signing contracts on your behalf and buy and sell according to the needs of the portfolio. -------------- This is the angle she wants the assignment to be approached from. PLEASE NOTE – USE THE PORTFOLIO MANAGEMENT PROCESS AS YOUR STARTING POINT AND THE PRINCIPLE AGENT RELATIONSHIP. The fund manager works with the team to make sure objectives are met. Not to say that there is 100% guarantee because there is risks involved. Talk about global investing make sure yu indicate to the client that you always try to provide a well diverse portfolio. (UNIT 2)
2. Investor Life Cycle – This is the different stages you go through as an investor. You must indicate and talk about generally the different stages in the investor life cycle. That the four stages:- accumulation, consolidation, spending and gifting. YOU MUST TALK ABOUT EACH OF THESE. After talking about the four phases, you must identify to the investor which phase he belongs to. Explain what the different stages are to the investor and make sure you indicate to him which stage he falls under. (UNIT 2)
3. Construct the policy statement for the client. Based on the investor selected, you tell him what he belongs to. He belongs to the consolidation phase. Now you are going to zone into your client, putting him into his category. Then you can talk generally about what happens in this category. After this you are required to do a policy statement. Your policy statement looks at the objectives and the constraints. Just before you get to this point you need to build a profile for the client. His name, age, where he is in terms of what is his goal. His aim is that he needs funds for when he retires. This aspect of it is where you talk about the preliminaries. The level of risk that he can take on has to be related in the consolidation phase. Indicate that he has a cash reserve or he also has a steady stream of income coming in. So when he makes an investment, its just his investment money. You need to find out if he has life insurance to ensure that h has enough funds to make an investment. Does he have health insurance to cover medical bills. She also mentioned near term high priority goals and long priority goals. Based on the amount of years that he wants to invest it would be long term high priority goals. This is apart of his objectives. Elaborate on long term high priority goals. Talk about the objectives generally and then look at which one works best selected. She indicated total return strategy would be ideal for this one. You can mention it falls between capital appreciation and total return. CONSTRAINTS – Tie it into the objectives. You also need to talk about the level of risk he’s willing to take. In this case it must be that he’s willing to take on some amount of risk. So that it can match with the capital appreciation and the total return strategy. Key constraints to mention: equity and time horizon, his unique needs and just included he’s open to investment for his unique needs. Also since the investor is will to take on high to moderate risk this is how his funds will be allocated.(UNIT 2)
4. Global investment – Three things to add: i. Correlation, risk free assets, the impact the a risk free asset might have on a portfolio. II. Diversification – what is the aim of diversification, so that we can reduce the standard deviation or the level of risk that is in a portfolio.(UNIT 2)
5. Elaborate of these point- Market risks – interest rates – you are expected to earn some interest on the investment but because of the risk, you may not be able to get level of return that you are looking for. Credit risk – When you lend your money there is no guarantee that may get it back. Liquidity risk – Giving up your money or a period of time without you having access to spend that money. Inflation – Takes away your purchasing power of your money or the value of our money over time. Exchange rate – It means the you may be required to do currency conversion and that they are fluctuation in exchange rates that going to affect you.(UNIT 2 AND 5)
6. Two investments strategies that will apply to this investment – Income strategy and passive and action strategy.(UNIT 1 AND 2)
7. Why is it important to allocate assets for an investor? In terms of the assets classes you’re allocating the different types of assets. In this case you can indicate to the investor what your proposals are. For example, the different assets that are going to be used. Then you include based on market trends currently these are the potential good investment options ex the stock, the bonds and the cash equivalent. Also give the investor the idea of what is stock, bonds and cash equivalent.(UNIT 2)
