Professional Documents
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comfortable level of risk. You can rebalance your portfolio based on
either the calendar or your investments. Many financial experts
recommend that investors rebalance their portfolios on a regular time
interval, such as every six or twelve months. The advantage of this
method is that the calendar is a reminder of when you should consider
rebalancing. Others recommend rebalancing only when the relative
weight of an asset class increases or decreases more than a certain
percentage that you’ve identified in advance.
Scam artiste read the headlines, too. Often, they’ll use a highly
publicized news item to lure potential investors and make their
“opportunity” sound more legitimate. The SEC recommends that you
ask questions and check out the answers with an unbiased source
before you invest. Always take your time and talk to trusted friends and
family members before investing
QUESTION TWO
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ago, if you had Lehman brothers stock in your equity portfolio and
Lehman brothers bonds in your fixed income portfolio, you would
have held asset classes, but that wouldn’t have protected you. The
risk you held was not linked to the asset class- it was a company risk
linked to leman brothers. By implementing effective diversification
as a strategy, you may be able to stabilize your portfolio by
minimizing company overlap between your stock and bonds.
TAX EFFICIENCY:-
The real measure of success for an investment strategy is how
many of your money you actually get to keep. That’s where
incorporating tax efficiencies into the investment philosophy
come in research has show that comprehensive tax planning can
save investors 75 basis points annually. It might not sound like
much ,but it’s big deal.
One way to achieve greater tax efficiency is by increasing your use
of tax- advantage vehicles. Another approach is to use your asset
location strategies to minimize taxes by determining what
account types assets should be held in to take advantaged of the
best tax treatment based on the asset. For example, assets that
pay interest and ordinary dividend should be held in tax –
advantaged account to avoid ordinary tax rates rather than in
taxable non-retirement account where they will generate annual
taxable income. Proactively harvesting losses also help offset
future gains and can further boister your bottom line.
COST EEFFICIENCY:-
Whether you’re managing you own investment or working with
an advisor, paying fees is a fact of life. So, if you’re going to pay
fees, make sure you’re getting good value. There are several type
of fees to consider including advisory and custodian fees,
investment expense ratios and transaction cost-all together you
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could be paying almost 3% in fees annually. If you are, that’ too
much. This also show that the good advisor may cover their fees
over time. Advisors add value by building effectively diversified
portfolio, monitoring market to avoid economic bubble and seize
opportunities, minimizing the hidden cost embedded in
investment products reducing client’s tax burdens, and the list
goes on, if you can find a strategy that offer a positive expected
return with a low stable correlation to equity markets, it might be
worth paying a higher fee for the diversification benefits.
QUESTION THREE
ROI=(Gains – cost)/cost
Of course, ROI depends on the types of securities an investor chooses
to hold, and this can change as market conditions improve or worsen.
Typically, the higher the potential ROI, the higher the risk and vic versa
Therefore , controlling risk is one of the primary function of sound
portfolio management.
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to maintain, rather than grow her current assets, she may want
only safe and secure investments in her portfolio. But what is
“safe and secure” and how can such an objective be achieved?
They two ways to mitigate risk, first its by carefully selecting
securities, as some are riskier than others. Another way to assess
risk is by determining the beta of the security under
consideration. A beta of 1 indicates the stock value typically rises
and falls in conjunction with the market. Higher and lower betas
indicate more or less divergence from the respective market
averages.
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REFERENCES………………
www.investopedia.com
www.thinkadvisor.com
www.wealthenhancement.com
www.cbn.gov.ng