AllocationDecision(投资分析与投资组合管理).pptx

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1、Lecture Presentation Software to accompanyInvestment Analysis and Portfolio ManagementSeventh Editionby Frank K.Reilly&Keith C.BrownChapter 2Chapter 2The Asset Allocation DecisionQuestions to be answered:What is asset allocation?What are the four steps in the portfolio management process?What is the

2、 role of asset allocation in investment planning?Why is a policy statement important to the planning process?Chapter 2The Asset Allocation DecisionWhat objectives and constraints should be detailed in a policy statement?How and why do investment goals change over a persons lifetime and circumstances

3、?Why do asset allocation strategies differ across national boundaries?Financial Plan PreliminariesInsuranceLife insuranceTerm life insurance-Provides death benefit only.Premium could change every renewal period Universal and variable life insurance provide cash value plus death benefit Financial Pla

4、n PreliminariesInsuranceHealth insuranceDisability insuranceAutomobile insuranceHome/rental insuranceLiability insuranceFinancial Plan PreliminariesCash reserveTo meet emergency needsIncludes cash equivalents(liquid investments)Equal to six months living expenses recommended by expertsIndividual Inv

5、estorLife CycleAccumulation phase early to middle years of working careerConsolidation phase past midpoint of careers.Earnings greater than expensesSpending/Gifting phase begins after retirementIndividual Investor Life CycleNet WorthAgeAccumulation PhaseLong-term:Retirement Childrens college Short-t

6、erm:House CarConsolidation PhaseLong-term:RetirementShort-term:VacationsChildrens CollegeSpending Phase Gifting PhaseLong-term:Estate PlanningShort-term:Lifestyle Needs Gifts Exhibit 2.1Life Cycle Investment GoalsNear-term,high-priority goalsLong-term,high-priority goalsLower-priority goalsThe Portf

7、olio Management Process1.Policy statement-Focus:Investors short-term and long-term needs,familiarity with capital market history,and expectations2.Examine current and project financial,economic,political,and social conditions-Focus:Short-term and intermediate-term expected conditions to use in const

8、ructing a specific portfolio3.Implement the plan by constructing the portfolio-Focus:Meet the investors needs at the minimum risk levels4.Feedback loop:Monitor and update investor needs,environmental conditions,portfolio performanceExhibit 2.2The Portfolio Management Process 1.Policy statementspecif

9、ies investment goals and acceptable risk levelsshould be reviewed periodicallyguides all investment decisionsThe Portfolio Management Process 2.Study current financial and economic conditions and forecast future trendsdetermine strategies to meet goalsrequires monitoring and updatingThe Portfolio Ma

10、nagement Process 3.Construct the portfolioallocate available funds to minimize investors risks and meet investment goals The Portfolio Management Process 4.Monitor and updateevaluate portfolio performanceMonitor investors needs and market conditionsrevise policy statement as neededmodify investment

11、strategy accordinglyThe Need For A Policy StatementHelps investors understand their own needs,objectives,and investment constraintsSets standards for evaluating portfolio performanceReduces the possibility of inappropriate behavior on the part of the portfolio manager Constructing A Policy Statement

12、Questions to be answered:What are the real risks of an adverse financial outcome,especially in the short run?What probable emotional reactions will I have to an adverse financial outcome?How knowledgeable am I about investments and the financial markets?Constructing A Policy StatementWhat other capi

13、tal or income sources do I have?How important is this particular portfolio to my overall financial position?What,if any,legal restrictions may affect my investment needs?What,if any,unanticipated consequences of interim fluctuations in portfolio value might affect my investment policy?Investment Obj

14、ectivesRisk ToleranceAbsolute or relative percentage returnGeneral goalsInvestment ObjectivesGeneral GoalsCapital preservationminimize risk of real lossCapital appreciationGrowth of the portfolio in real terms to meet future needCurrent incomeFocus is in generating income rather than capital gainsIn

15、vestment ObjectivesGeneral GoalsTotal returnIncrease portfolio value by capital gains and by reinvesting current incomeMaintain moderate risk exposureInvestment ConstraintsLiquidity needsVary between investors depending upon age,employment,tax status,etc.Time horizonInfluences liquidity needs and ri

16、sk toleranceInvestment ConstraintsTax concernsCapital gains or losses taxed differently from incomeUnrealized capital gain reflect price appreciation of currently held assets that have not yet been soldRealized capital gain when the asset has been sold at a profitTrade-off between taxes and diversif

17、ication tax consequences of selling company stock for diversification purposesInvestment ConstraintsTax concerns(continued)interest on municipal bonds exempt from federal income tax and from state of issueinterest on federal securities exempt from state income taxcontributions to an IRA may qualify

18、as deductible from taxable incometax deferral considerations-compoundingEquivalent Taxable YieldEffect of Tax Deferral on Investor Wealth over Time$1,000Investment ValueTime$10,062.66$5,365.91Exhibit 2.6Methods of Tax DeferralRegular IRA-tax deductibleTax on returns deferred until withdrawal Roth IR

19、A-not tax deductibletax-free withdrawals possibleCash value life insurance funds accumulate tax-free until they are withdrawnTax Sheltered AnnuitiesEmployers 401(k)and 403(b)plans tax-deferred investmentsLegal and Regulatory FactorsLimitations or penalties on withdrawalsFiduciary responsibilities-“p

20、rudent man”ruleInvestment laws prohibit insider tradingUnique Needs and PreferencesPersonal preferences such as socially conscious investments could influence investment choiceTime constraints or lack of expertise for managing the portfolio may require professional managementLarge investment in empl

21、oyers stock may require consideration of diversification needs Institutional investors needsConstructing the Policy StatementObjectives-risk and returnConstraints-liquidity,time horizon,tax factors,legal and regulatory constraints,and unique needs and preferencesDeveloping a plan depends on understa

22、nding the relationship between risk and return and the the importance of diversificationThe Importance of Asset AllocationAn investment strategy is based on four decisionsWhat asset classes to consider for investmentWhat normal or policy weights to assign to each eligible classDetermining the allowa

23、ble allocation ranges based on policy weightsWhat specific securities to purchase for the portfolioThe Importance of Asset AllocationAccording to research studies,most(85%to 95%)of the overall investment return is due to the first two decisions,not the selection of individual investmentsReturns and

24、Risk of Different Asset ClassesHistorically,small company stocks have generated the highest returns.But the volatility of returns have been the highest tooInflation and taxes have a major impact on returnsReturns on Treasury Bills have barely kept pace with inflationReturns and Risk of Different Ass

25、et ClassesMeasuring risk by probability of not meeting your investment return objective indicates risk of equities is small and that of T-bills is large because of their differences in expected returnsFocusing only on return variability as a measure of risk ignores reinvestment riskAsset Allocation

26、SummaryPolicy statement determines types of assets to include in portfolioAsset allocation determines portfolio return more than stock selectionOver long time periods,sizable allocation to equity will improve resultsRisk of a strategy depends on the investors goals and time horizonAsset Allocation a

27、nd Cultural DifferencesSocial,political,and tax environments influence the asset allocation decisionEquity allocations of U.S.pension funds average 58%In the United Kingdom,equities make up 78%of assetsIn Germany,equity allocation averages 8%In Japan,equities are 37%of assetsSummary1.Identify invest

28、ment needs,risk tolerance,and familiarity with capital markets2.Identify objectives and constraints3.Enhance investment plans by accurate formulation of a policy statement4.Focus on asset allocation as it determines long-term returns and riskThe InternetInvestments Onlinewww.amercoll.eduwww.idfp.org

29、www.napfa.orgAppendix Objectives and Constraints of Institutional InvestorsMutual Funds pool investors funds and invests them in financial assets as per its investment objectivePension FundsReceive contributions from the firm,its employees,or both and invests those fundsDefined Benefit promise to pa

30、y retirees a specific income stream after retirementDefined Contribution do not promise a set of benefits.Employees retirement income is not an obligation of the firm Endowment FundsThey represent contributions made to charitable or educational institutions Insurance CompaniesLife Insurance Companie

31、searn rate in excess of actuarial rategrowing surplus if the spread is positivefiduciary principles limit the risk toleranceliquidity needs have increased tax rule changesInsurance CompaniesNonlife Insurance Companiescash flows less predictablefiduciary responsibility to claimantsRisk exposure low t

32、o moderateliquidity concerns due to uncertain claim patternsregulation more permissiveBanksMust attract funds in a competitive interest rate environmentTry to maintain a positive difference between their cost of funds and their return on assetsNeed substantial liquidity to meet withdrawals and loan

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