Finance with Dr. John Elder
LE#5
Write a one-page (or
less) policy statement for your stock market account, including a
return objective, risk tolerance and time horizon. Your policy
statement may follow life-cycle guidelines, but may also be adjusted
for personal attitudes toward risk. Then, develop a broad
strategy that sets your asset allocation. Your report should
include the following headings:
- Policy Statement
- Constraints
- Strategy, asset allocation and benchmark.
For some help in doing this, go to Vanguard's home page
(http://www.vanguard.com) then click on "Go to personal investors site"
then "planning and education" then click on "Investor Education" and
then " Investor questionnaire". Then answer the questions as best
as possible. These steps will help identify your risk tolerance
and asset allocation. Be sure to disclose and print your
risk tolerance as indicated by this tool. The
direct link was recently here.
OTIS: Adjust your
portfolio to be more consistent with your risk tolerance and
objectives. We will talk more about this later in the semester,
but give it a try for now. E.g, if you have a low risk tolerance,
unload smaller, less well known companies. Include your policy
statement and a brief description on how you rebalanced your portfolio
in your OTIS "journal".
Here is an Investment Summary (from Prospectus for Fidelity Magellan
Fund) that gives you sense of how statements for mutual funds
look. For this homework, your investment policy statement should
more closely follow (but do not copy) the example from class.
Investment Objective
Magellan® Fund seeks capital appreciation.
Principal Investment Strategies
Fidelity Management & Research Company (FMR)'s principal investment strategies include:
· Normally investing primarily in common stocks.
· Investing in domestic and foreign issuers.
· Investing in either "growth" stocks or "value" stocks or both.
· Using fundamental analysis of each issuer's financial
condition and industry position and market and economic conditions to
select investments.
· Potentially using other investment techniques discussed under
"Investment Details" to increase or decrease the fund's exposure to
changing security prices or other factors that affect security values.
Principal Investment Risks
The fund is subject to the following principal investment risks:
· Stock Market Volatility. Stock markets are volatile and can
decline significantly in response to adverse issuer, political,
regulatory, market, or economic developments. Different parts of the
market can react differently to these developments.
· Foreign Exposure. Foreign markets can be more volatile than
the U.S. market due to increased risks of adverse issuer, political,
regulatory, market, or economic developments and can perform
differently from the U.S. market.
· Issuer-Specific Changes. The value of an individual security
or particular type of security can be more volatile than the market as
a whole and can perform differently from the value of the market as a
whole.
An investment in the fund is not a deposit of a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. When you sell your shares they may be worth more or
less than what you paid for them, which means that you could lose
money.