Stock Trak Portfolio Investment Policy Statement

Stok Trak Portfolioinvestment Policy Statement Ipsinvestment Objecti

Stok Trak Portfolio Investment Policy Statement (IPS) Investment objective: The Policy is designed for a client who is 25 years old who holds a steady job, is a valued employee, and has adequate insurance coverage. The goal is to build a retirement fund. The strategy is to carry moderate to high amount of risk because the income stream from his job will grow overtime. Low risk strategy is inappropriate for his retirement fund goal. Total return or capital appreciation objective would be most appropriate.

Invest funds in a variety of moderate to high risk investments. The average risk of portfolio should exceed risk of a broad stock market index, such as the NYSE. The Portfolio will include: · Domestic equity which consists of 65% of total portfolio allocated to different companies (large or small) within many sector. · Mutual funds with 27% of portfolio. · Remaining funds of 8% should be invested in corporate bonds.

Paper For Above instruction

The investment policy statement (IPS) for a young investor aiming to accumulate a retirement fund emphasizes a strategic allocation favoring moderate to high-risk assets to maximize capital appreciation. This approach aligns with the investor's age, employment stability, and the foresight of income growth over time. The portfolio structure, asset allocation, and security selection are designed to balance risk and return in accordance with long-term growth objectives.

Asset Allocation and Rationale

The core of the portfolio comprises 65% in domestic equities, diversified across industry sectors, reflecting an aggressive stance focused on capital growth. Large-cap stocks such as Apple (AAPL), Amazon (AMZN), and Goldman Sachs (GS) constitute a significant part of this allocation, given their market stability and growth potential. Small- and mid-cap stocks like General Motors (GM) and Devon Energy (DVN) add to the growth potential but carry higher volatility, which is acceptable given the investor’s age and risk appetite.

Mutual funds constitute 27% of the portfolio, offering diversification and professional management. The selected funds, such as American Funds Inc. (AMECX), Primecap Odyssey (POAGX), and Vanguard Small-Cap (VSTCX), span different styles and market segments, enhancing diversification. These funds align with the passive and asset attribute-based strategies discussed in Chapter 16, enabling exposure to broad market movements while mitigating individual stock risks.

The remaining 8% is allocated to corporate bonds, primarily to provide modest income and portfolio stability. Although this is a small proportion, it reflects a balanced approach, considering the higher risk profile of equities and mutual funds.

Security Selection and Strategy

The securities were selected based on comprehensive fundamental analysis, growth prospects, sector diversification, and historical performance. Large-cap stocks like Apple and Amazon are chosen for their market dominance and technological innovation, aligning with a growth-oriented strategy. Mid- and small-cap stocks are included to capture higher growth potential, recognizing their higher volatility.

The mutual funds were chosen based on their aggressive growth orientation, fee structures, and historical performance relative to benchmarks. Funds like Primecap Odyssey (POAGX) and Vanguard Small-Cap (VSTCX) offer exposure to the growth segment while maintaining diversification benefits. Bond holdings, although limited, serve to reduce overall portfolio volatility and provide some fixed income.

Performance and Benchmark Comparison

As of the latest reporting period, the portfolio's total value has marginally decreased to approximately $940,153 from an initial investment of $1,000,000, reflecting a slight loss perhaps due to market fluctuations. To evaluate the portfolio’s performance, the benchmark used is the S&P 500 Index, representing the broad equity market.

The portfolio's Sharpe ratio, which measures risk-adjusted return, can be compared with that of the S&P 500. An above-benchmark Sharpe ratio would indicate effective risk management relative to return. The portfolio’s alpha, indicating excess return relative to the benchmark, has yet to be calculated precisely but is expected to be positive given diversified holdings and active selection strategies.

Assessment of What Worked and Lessons Learned

Security selection focused on growth and diversification helped in capturing gains during bullish market periods; however, the recent downturn impacted overall performance. Diversification across sectors and assets minimized losses compared to more concentrated portfolios. Active monitoring facilitated timely exits from underperforming stocks and funds.

One mistake was underestimating market volatility, leading to a more conservative shift in bond allocations; however, this reduced potential gains. Lessons include the importance of maintaining a long-term perspective, adhering to the asset allocation strategy despite short-term market fluctuations, and diversifying across asset classes.

If managing real-money portfolios, more dynamic tactical adjustments could be employed to capitalize on short-term market opportunities. Incorporating options and alternative assets might enhance returns or provide hedging mechanisms. Continuous rebalancing aligned with changing market conditions would be essential for sustained performance.

In conclusion, the investment strategy, guided by the IPS, has fostered disciplined investing aligned with the young investor’s goals. Maintaining diversification, rigorous security analysis, and strategic asset allocation remains foundational for achieving long-term retirement objectives.

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