LESSON 1 - UNDERSTANDING INVESTMENT & PORTFOLIO.pdf

This slide is all about the introduction to Investment and Portfolio Management

1. Investment &
Portfolio
Management

2. Understanding Investment
& Portfolio Management

3. Definition of Terms:
Active Management
A strategy where portfolio managers actively buy and sell securities
in an attempt to outperform a benchmark.

4. Definition of Terms:
Active Management
A strategy where portfolio managers actively buy and sell securities
in an attempt to outperform a benchmark.
Alpha
The excess return of an investment relative to its benchmark.

5. Definition of Terms:
Active Management
A strategy where portfolio managers actively buy and sell securities
in an attempt to outperform a benchmark.
Alpha
The excess return of an investment relative to its benchmark.
Asset Allocation
The distribution of assets (e.g., stocks, bonds, real estate) within a
portfolio to achieve a preferred risk-return profile.

6. Definition of Terms:
Asset Class
A group of investments with similar characteristics (e.g., stocks,
bonds, real estate).

7. Definition of Terms:
Asset Class
A group of investments with similar characteristics (e.g., stocks,
bonds, real estate).
Benchmark
A standard against which the performance of an investment or
portfolio is measured.

8. Definition of Terms:
Asset Class
A group of investments with similar characteristics (e.g., stocks,
bonds, real estate).
Benchmark
A standard against which the performance of an investment or
portfolio is measured.
Beta
A measure of an investment's volatility in relation to the overall
market.

9. Definition of Terms:
Diversification
Spreading investments across assets to lower risk.

10. Definition of Terms:
Diversification
Spreading investments across assets to lower risk.
Index Fund
A type of mutual fund or ETF that tracks the performance of a
specific market index

11. Definition of Terms:
Diversification
Spreading investments across assets to lower risk.
Index Fund
A type of mutual fund or ETF that tracks the performance of a
specific market index
Liquidity
The ease with which an asset can be converted into cash without
affecting its market price.

12. Definition of Terms:
Net Asset Value (NAV)
The value per share of a mutual fund or ETF on a specific date or
time.

13. Definition of Terms:
Net Asset Value (NAV)
The value per share of a mutual fund or ETF on a specific date or
time.
Passive Management
A strategy that aims to replicate the performance of a benchmark
index, often through investing in index funds or ETFs.

14. Definition of Terms:
Net Asset Value (NAV)
The value per share of a mutual fund or ETF on a specific date or
time.
Passive Management
A strategy that aims to replicate the performance of a benchmark
index, often through investing in index funds or ETFs.
Portfolio Optimization
The process of selecting the best portfolio (asset allocation) given the
investor's constraints and objectives.

15. Definition of Terms:
Rebalancing
Adjusting a portfolio's asset allocation back to its target percentages
to maintain the desired risk-return profile.

16. Definition of Terms:
Rebalancing
Adjusting a portfolio's asset allocation back to its target percentages
to maintain the desired risk-return profile.
Risk Tolerance
An investor's ability and willingness to withstand changes in the
value of their holdings.

17. Definition of Terms:
Rebalancing
Adjusting a portfolio's asset allocation back to its target percentages
to maintain the desired risk-return profile.
Risk Tolerance
An investor's ability and willingness to withstand changes in the
value of their holdings.
Risk-Return Tradeoff
The principle that potential returns rise with an increase in risk.
Thus, lower-risk investments offer lower potential returns, while
higher-risk investments offer higher potential returns.

18. Definition of Terms:
Sharpe Ratio
A measure of risk-adjusted return, calculated as the excess return
of an investment over the risk-free rate divided by its standard
deviation.

19. Definition of Terms:
Sharpe Ratio
A measure of risk-adjusted return, calculated as the excess return
of an investment over the risk-free rate divided by its standard
deviation.
Tracking Error
The difference between the performance of a portfolio and the
performance of its benchmark index.

20. Definition of Terms:
Sharpe Ratio
A measure of risk-adjusted return, calculated as the excess return
of an investment over the risk-free rate divided by its standard
deviation.
Tracking Error
The difference between the performance of a portfolio and the
performance of its benchmark index.
Turnover
The percentage of a portfolio's holdings that are sold and replaced
over a specific period.

21. Definition of Terms:
Volatility
The degree of variation in prices over time for a given asset.

22. Who uses Portfolio
Management?
Individual Investors
Someone who invests in securities and assets on their own,
usually in smaller quantities.
Institutional Investors
Legal entities that participate in trading in the financial markets.

23. Passive vs. Active
Portfolio Management

24. Passive management is the set-it-and-forget-it long-term strategy. It may
involve investing in one or more exchange-traded (ETF) index funds. This is
commonly referred to as indexing or index investing. Those who build indexed
portfolios may use modern portfolio theory to help them optimize the mix.
Passive Portfolio Management

25. Approach: Hands-off
Cost Implications: Less costly
Performance: Historically, over long periods, market-performs
Passive Portfolio Management

26. Active management involves attempting to beat the performance of an index
by actively buying and selling individual stocks and other assets. Closed-end
funds are generally actively managed, as are many mutual funds. Active
managers may use any of a wide range of quantitative or qualitative models
to aid in their evaluation of potential investments.
Active Portfolio Management

27. Approach: Hands-on
Cost Implications: More costly
Performance: Historically, over long periods, underperforms
Active Portfolio Management

28. Key Elements of
Portfolio
Management

29. Key Elements of Portfolio
Management
Asset Allocation
The key to effective portfolio management is the long-term mix
of assets. Generally, that means stocks, bonds, and cash
equivalents such as certificates of deposit. There are others,
called alternative investments, such as real estate, commodities,
derivatives, and cryptocurrency.

30. Key Elements of Portfolio
Management
Diversification
Diversification involves spreading the risk and reward of
individual securities within an asset class, or between asset
classes. Because it is difficult to know which subset of an asset
class or sector is likely to outperform another, diversification
seeks to capture the returns of different sectors over time while
reducing volatility.

31. Key Elements of Portfolio
Management
Rebalancing
Rebalancing returns a portfolio to its original target allocation at
regular intervals, usually annually. This is done to reinstate the
original asset mix when the market movements push it out of
kilter.

32. Key Elements of Portfolio
Management
Tax-Efficiency
A potentially material aspect of portfolio management relates to
how your portfolio is shaped to minimize taxes in the long-term.
This is relevant for retirement accounts, how long securities are
held on for, and which securities are held.

33. Common Portfolio
Management
Strategies

34. Common Portfolio
Management Strategies
Aggressive
An aggressive portfolio prioritizes maximizing the potential
earnings of the portfolio. Often invested in riskier industries or
unproven alternative assets, an investor may be willing to risk
losses. Instead, investors are looking for a "home run"
investment by striking it big with a single investment.

35. Common Portfolio
Management Strategies
Conservative
A conservative portfolio relates to capital preservation. Extremely
risk-averse investors may adopt a portfolio management strategy
that minimizes growth but also minimizes the risk of losses.

36. Common Portfolio
Management Strategies
Moderate
A moderate portfolio management strategy blends an aggressive
and conservative approach. In an attempt to get the best of both
worlds, a moderate portfolio still invests heavily in equities but
also diversifies and may be more selective in what those equities
are.

37. Common Portfolio
Management Strategies
Income-oriented
Often the option of choice for retired investors, this is for those
who wish to live in part off their portfolio returns. These returns
could come from bond coupons or dividends.

38. Common Portfolio
Management Strategies
Tax-efficient
nvestors may be inclined to focus primarily on minimizing taxes,
even at the expense of higher returns. This may be especially
important for high earners who are in the highest income tax
bracket. This may also be a priority for young investors who have
a very long way until retirement. By getting started with a Roth
IRA, these investors can grow their portfolio over time and face no
federal taxes on these funds when they retire.

39. Challenges of
Portfolio
Managemnent

40. Item 1
20%
Item 2
20%
Item 3
20%
Item 4
20%
Item 5
20%
investment portfolios are subject
to market fluctuations and
volatility.
Finding the right mix of asset
classes and investments to
balance risk and return requires
an in-depth understanding of the
market and the investor's risk
tolerance.
Risk tolerance, investment
horizon, and return expectations.
Portfolio managers charge fees.

41. How do I
Determine My
Risk Tolerance?