Date post: | 11-Nov-2014 |
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Economy & Finance |
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Jerusalem Investing Meetup Group
February Meeting
Putting it all together
Building an investment portfolio
First things first
What is my risk profile?
Risk Tolerance
Risk• how much money is at
stake• how willing am i to deal
with losses• can i stomach volatility• how soon will i need this
money
Return• historical returns vs. actual• desire to outpace inflation• diversification across
assets• diversification across
geography
Risk• how much money is at stake• how willing am i to deal with losses• can i stomach volatility• how soon will i need this money• how far am I from retirement• if market goes down, i would...
Return• historical returns vs. actual• desire to outpace inflation• diversification across assets• diversification across geography• financial goals• how market exposure corresponds to other assets,
career, business
But, need to optimize risk-return
OR, how to get more return for same level of
risk
Remember tax efficiency
need to take taxes into account(ant)
Step 2: Asset Allocation
Both an art and a science
• determine exposure to different asset classes
• how this impacts performance and risk
• domestic vs. international
• stocks vs. bonds
Where to begin?
Endowments
Harvard, Yale publish their yearly reports, useful for asset allocation
Online Research
Most investment banks provide allocation suggestions
International exposure
BUT,
hard to cookie-cutter this
your financial situation is unique
For those looking to be more active
CORE + Satellite
Core + Satellite = Secret Sauce
CoreMajor holdingsRisk managementFunds/ETFs
SatelliteTake some more riskSingle stocksThemes
Last step: Finding the right vehicle
Once you have your allocation, how do you invest in it?
2 ways to go (or some of each)
Single Stocks• few single stocks may
approximate a sector or geography
• leaders in sectors• returns can exceed or
underperform market
Funds/ETFs• pay management fees• diversification affects
returns• hot-hand dynamics• less pressure to pick
individual winners
Which is better?
Like all good questions, it depends...
Active vs. Passive?
Passive vs. Active Investing
Passive• Index Funds• Market returns• Bear market realities• new product
developmento Vanguardo WisdomTree
• new exposure to alternative assets
Active• rare outperformance• hedge fund
discoveries• hot-hand syndrome• new opportunities for
exposure to alternative assets