CONSTRUCT AN INVESTMENT PORTFOLIO THAT IS APPROPRIATE FOR YOUR CLIENT:
• SHE IS 60 YEARS OLD AND PLANS TO RETIRE WITHIN 5 YEARS.
• SHE HAS $4 MILLION TO INVEST.
• SHE IS PRIMARILY INTERESTED IN CREATING STEADY INCOME FROM THE PORTFOLIO. HER GOAL IS $120,000 PER YEAR.
• SHE IS ALSO CONCERNED ABOUT INFLATION AND THEREFORE WANTS THE PORTFOLIO VALUE AND INCOME TO KEEP PACE WITH INFLATION.
• THE PORTFOLIO MUST BE DIVERSIFIED WITH STOCKS, BONDS, CASH, ETC.
• SHE IS WILLING TO ASSUME A MODERATE LEVEL OF RISK. YOU MUST CONSIDER STOCK MARKET RISK AND BOND RISK (E.G. DURATION):
• PLEASE CALCULATE THE BETA FOR EACH HOLDING WHERE AVAILABLE.
• PLEASE CALCULATE DURATION FOR EACH WHERE AVAILABLE. HTTPS://WWW.YOUTUBE.COM/WATCH?V=I8IQRHDROO8
• ALL SECURITIES MUST BE PUBLICLY TRADED SECURITIES. MUTUAL FUNDS AND ETFS MUST HAVE AT LEAST A 5 YEAR TRACK RECORD. PLEASE SHOW ACTUAL PERFORMANCE OF PORTFOLIO FOR LAST 5 YEARS.
• PLEASE SHOW THE ALLOCATION AND ANNUAL INCOME FOR EACH INVESTMENT POSITION IN THE PORTFOLIO.
• PLEASE INCLUDE THE FOLLOWING 3 “STRESS TESTS”:
• 10% DECLINE IN S&P 500 INDEX, NO CHANGE IN INTEREST RATES
• 20% DECLINE IN S&P 500 INDEX, NO CHANGE IN INTEREST RATES
• 0% DECLINE IN S&P 500 INDEX AND A 1% INCREASE IN INTEREST RATES
• PLEASE CALCULATE THE ANNUAL EXPENSES IN THE PORTFOLIO (E.G. MUTUAL FUNDS AND EXCHANGE TRADED FUNDS)
HERE ARE A FEW HELPFUL SUGGESTIONS:
• PERFORMANCE (STRESS TESTS) NEED TO INCLUDE A SECURITIES LEVEL ANALYSIS. FOR EXAMPLE, EACH STOCK (OR FUND) SHOULD BE TESTED AGAINST ITS’ RESPECTIVE BETA.
• IF YOU ARE INCLUDING BOND FUNDS IN YOUR PORTFOLIO, YOU CAN EASILY GET THE DURATION ON THE FUND MANAGERS WEBSITE.
• IF YOU ARE USING CDS IN THE PORTFOLIO, YOU CAN ASSUME THE DURATION IS EQUAL TO THE MATURITY DATE OF THE CD.
• REMEMBER, THAT YOUR CLIENT WANTS THE VALUE OF THE PORTFOLIO TO KEEP PACE WITH INFLATION. THIS IS WHY YOU SHOULD ONLY USE SECURITIES THAT HAVE A TRACK RECORD OF AT LEAST 5 YEARS. YOU CAN ASSUME THAT THE FUTURE PERFORMANCE OF THE PORTFOLIO WILL BE EQUAL TO THE PAST PERFORMANCE.