PRINCIPLES OF FINANCIAL MARKETS

Principles of Financial Markets

Principles of Financial Markets

The purpose of this assignment is to invest $50?000 by forming a portfolio. Firstly? I have discussed the general investment trends and environments and than shown how I made portfolio and invested $50?000 in order to generate maximum profits. Asset allocation is based on the incontrovertible truth that a portfolio needs to be structured on the basis that no one can predict the future. A colleague of mine predicted that the S&P 500 would be up about 17% in 2008. He is now rationalizing his inaccuracy by blaming the sub-prime mess. "If it hadn't been for that? I probably would have been right."

Asset Allocation Strategy Utilizing Mutual Funds

To begin with? investors should decide on a strategy for allocating their assets. My choice is to use mutual funds. This way we can identify the best manager for any particular category. Do not use index funds. Index funds are glorified traps in down markets. They are not actively managed? so no one is there to save the investor in down markets. There is an active manager that is superior to any index fund.

Finally how much risk can the investor take in accomplishing his goals? For instance? investors probably shouldn't invest in a stock mutual fund if they don't have three years or less to reach a goal. If the investment loses money the investor may not have enough time to recover.

Structuring the Portfolio

Think of the portfolio as though it was a sports team. Investors need an offense and defense. The defense will help protect portfolios in down markets and the offense will help it grow in up markets. Here are some examples of offensive funds:

CGM Focus

Delafield

Fairholme

Growth Fund of America

Thornburg Value

Wintergreen

Here are examples of defensive funds:

Hussman Strategic Growth

Harbor Bond

FPA New Income

Loomis Sayles Bond

FPA Crescent

Here are some International/Foreign funds:

Dodge & Cox International

Europacific

Longleaf International

Matthews Pacific Tiger

Here are examples of the "heart" of a portfolio. Think of the previous funds as the soul of a portfolio? but these are examples of core hybrid funds. These funds make up about 40% of our portfolios:

Capital Income Builder

Black Rock Global Allocation

Ivy Asset Strategy

Oakmark Equity and Income

Pearl Total Return

Vanguard Wellington

Thornburg Investment Income Builder

The heart of a portfolio consists of managers that can invest in any asset class. They can also be in foreign investments.

My Rule Book

Just as the Around the Horn trading plan developed for our personal use? these rules also evolved to maximize our own trading profits? minimize risk and still allow the trades room to breathe. While these guidelines will always have an exception to the rule (e.g. stopping out of a trade that later becomes profitable) over time? they serve us well more often than not.

Entries:

1. The entry price (or entry tick within the allowable slippage or gap) has to print on the ASX. That is? a stock that ticks the entry price on the ASX ...