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Wealth Management
Guide to Wealth.qxd 2/13/03 12:31 AM Page 2
Table of Contents
3 DEVELOPING PROPER
INVESTMENT STRATEGIES
4 DEVELOPING PORTFOLIO
OBJECTIVES
7 RISK
11 TIME HORIZON
1
Guide to Wealth.qxd 2/13/03 12:32 AM Page 2
Developing Proper
Investment Strategies
2 3
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• For cash-flow; Economic & Market Outlook Absolute & Real Returns
Active Asset Allocation Relative Returns
Common-Factor Emphasis Risk-Adjusted Returns
Selection Bias Performance Attribution
• For aggressive growth;
4 5
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Risk
14 International Stocks
13
12
Return (%)
U. S. Stocks
11
9 U. S. Bonds
8 Real Estate
7 T-Bills
6
0 2 4 6 8 10 12 14 16 18 20 22 24
Risk
Measured by Standard Deviation (%)
6 7
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Liquidity & income Two-year Duration Five-year Duration Ten-Year Duration Unlimited Horizon
100% short term 30% cash 20% cash 5% cash 45% equity
90% bonds 20% stocks 40% stocks 80% stocks 25% futures
10% cash 50% fixed income 20% fixed income 15% fixed income 10% commodities
The best investment strategy is the one that TOTAL RETURN AND RISK OF ASSET
achieves the investor’s objectives with the ALLOCATIONS BY HOLDING PERIODS,
1950-2001
correct balance of the risk return trade-off,
viewed over the proper Duration/Time Horizon.
Average Annual Rate of Return (%)
14
13 100% Stocks
The asset class, which produces the best return 12 80% Stocks / 20% Bonds
8 9
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Time Horizon
60
50
40
Rate of Return (%)
30
20 14.43
10 10.08
5.74
0
-10
-20 Average
-30
100% Stocks 50% Stocks / 50% Bonds 100% Bonds
10 11
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60
50
40
Rate of Return (%)
30
20
10
0
-10
-20
-30
1950 1960 1970 1980 1990 2000 2001
Years
Stocks Bonds
12 13
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35
Compound Annual Return (%)
140
14 15
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16
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