Business Leadership (HELP3)

Lesson 5_ Personal finance [2]

1. Portfolio management strategies

1) The meaning of portfolio management

What is Portfolio Management?

Portfolio
Portfoliomanagement
management

Practicing diversified investment by investing savings

as cash and deposits, bonds, stocks and property
which all have different levels of liquidity, risks and profits.

Portfolio Selection
Property

Bank deposit
As Portfolio
Securities

Cash

Bs Portfolio

Cash

Securities
Property

Bank deposit

1. Portfolio management strategies

2) Changes of the portfolio management environment

Arrival of the low-growth age
70s~80s
- Economic development was above 8% every year
- Monthly wages rose at a high rate
- Saving monthly wages at a bank assured
ones financial life in old age
After 2000
- Economic development is about 4% every year
- High rate of monthly wage rises is difficult
- Saving monthly wages only does not assure ones life in old age

Arrival of the low-interest age

From the age of 20%~30% deposit interest rate to the age of 3~4% deposit
interest rate
- A retired person who received 400 million won at retirement during
the IMF crisis : 8 million won as a risk-free monthly income from interest
- At present, saving 400 million won will generate 1.2~1.6 million won monthly
- An age when it is difficult to rely solely on risk-free products

1. Portfolio management strategies

2) Changes of the portfolio management environment

Arrival of the aging era
Be prepared for the risks that come with a long life!
- Average life span for men is 75 years and 82 years for women
Men need to prepare for the 25 years following their retirement at 50,
and women need to prepare for 10 years of living alone after the
death of their husband

Prepare for the low-development, low-interest,

aging era and pursue high profits even if you
must take risks

1. Portfolio management strategies

2) Changes of the portfolio management environment

Suggestions of portfolio management strategies in the changing environment

 Conversion of the age of saving to the age of investment

 Change from dealing with banks, savings banks and
insurance companies to
 direct financing and dealing with stocks, bonds and funds

1. Portfolio management strategies

3) Risk management
Savings product

Investment product

- Low risk, low profit, guarantees the invested sum

and interest amount
- High risk, high profit, does not guarantee the invested sum
and interest amount

Risk assets
Risk follows investment

Default Risk

Capital Loss Risk

What is a good amount of risk assets to possess?

- An amount that will let you cope for now even if you cant get the invested sum back!
(Financial Tolerance)
- Money with low Financial Tolerance should be invested in safe assets (bank savings
product, national and public bonds)!

1. Portfolio management strategies

3) Risk management

What is a reasonable rate of risk asset
possession?
A financial experts advice

100-My
100-MyAge
AgeRule
Rule

Invest in high-risk and high-profit

investment products up to the 100-My Age rate

100-30 years old (=70)

- 70% as high-risk financial instrument (stocks, funds)
- 30% as safe financial instrument (bank deposit, bonds)
100 60 years old (=40)
- 40% investment, 60% savings

1. Portfolio management strategies

3) Risk management

10 Commandments of Investment

1. Go to an investment party early and stay until late.

2. Invest every month continuously if possible.
3. Practice diversified investment.
4. Dont ignore tax advantages when you are choosing investments.
5. Dont rush out at the slump of the market flow.
6. Maintain the rate of asset formation.
7. Dont hope for miracles.
8. Practice a long-term possession.
9. Invest carefully, and wait after investing.
10. Consult experts if necessary.

1. Portfolio management strategies

4) The world of funds

Limits of ones (a non-expert of finance) direct financing
Limits of diversifying a portfolio by saving only a small amount
Necessary to have expert competence on perceiving the levels of profit and risk.
You must be faithful to your job!

Students! Dont be interested in financial technology!

The fund that the financial experts invest in
Collect small investment capitals to form a large
investment capital!
Possibilities of dispersion of risks and promotion of high
profits!
Accumulative funds are good!
- Put aside a set amount every month, just like a banks
fixed deposit.

1. Portfolio management strategies

4) The world of funds

Why a fund?
Calculation of
average earning rate
(Dollar Cost Averaging)

- The average purchase price falls if stocks are bought in

large amounts when the stock prices are falling.
- It is possible to recover earnings when the price rises again.

Earnings when 3million won is invested in stocks for three months

Date of
investment

Stock price
change

Purchase
4/25

10,000

5/25

5,000

6/25

7,000

Sale 7/25

10,000

Stock
balance

Total
investment
sum

Purchase of
300 stocks

3 million
won

Sale of 300
stocks

3 million
won

Investment
earnings

0 won

1. Portfolio management strategies

4) The world of funds

Calculation of the earning rate of an accumulative fund
What is the scale of profit and loss if funds are sold after investing in them for three
months at 1 million won per month to a total of 3 million won?
Date of
investment

Stock price

Stock
balance

Total investment
sum

Investment
earnings

Purchase
4/25

10,000

100/100

1 million won

10,000 won

5/25

5,000

200/300

2 million won

6,667won

6/25

7,000

142/442

3 million won

6,841 won

Sale 7/25

10,000

4.42 million won

1.42 won