UNIVERSITY OF MYSORE

TOPIC: BUILDING A BALANCED PORTFOLIO

PRESENTING TO, VENKTESH SIR,

FACULTY ,

DOS IN COMMERCE

MANASA GANGOTRI

MYSORE

INTRODUCTION

In today's financial marketplace, a well-maintained portfolio is vital to any investor's success. As an individual investor, you need to know how to determine an asset allocation that best conforms to your personal investment goals and strategies. In other words, your portfolio should meet your future needs for capital and give you peace of mind. Investors can construct portfolios aligned to their goals and investment strategies by following a systematic approach. Here we go over some essential steps for taking such an approach.

HOW TO BUILD A BALANCED PORTFOLIO

When it comes to building an investment portfolio there are a few golden rules: know what you want to achieve; research thoroughly before committing any money; and avoid the temptation to risk every penny on just one area of the market.

If the past few years have taught us anything it's that there are no guarantees of investment success, so ensuring you have a diversified spread of assets is essential to reduce your overall level of risk. A well constructed portfolio should be diversified in a variety of ways, including overall investment style, number of individual asset classes, spread of geographical allocation and the approach of the fund manager.

STEP’S FOR BUILDING A BALANCED PORTFOLIO

There are five step building a balanced portfolio

1. Understand risk

2. Know your type

3. Diversify

4. Choose your funds

5. Monitor your decisions

UNDERSTAND RISK

Most portfolios will include equities, cash and fixed interest investments, such as corporate bonds and gilts, but how you divvy up your money between these asset classes will depend on your financial goals and willingness to accept losses. So the first step is to ascertain if you are a low, medium or high-risk investor.

Types of risk

Lower risk

Medium risk

Higher risk

KNOW YOUR TYPE Your long-term goals will determine your investment style. If you're looking for regular returns in the form of

dividends, for example, you want to boost your income in retirement, investing for income makes sense.

Golden rules of portfolio building

• Consider your objectives. Savings are for the short term, investing is for the long term.

• Accept that the value of your investments will rise and fall.

• Remember risk and return are closely linked.

• Ensure your investments reflect your goals and attitude to risk.

• Review your portfolio every six months.

If you have years to save, investing for growth might be more suitable as you will focus on companies whose profits and share prices are likely to dramatically outperform the stock market over the next few years. As part of a diversified approach, it's advisable to have a mix of both strategies within your overall portfolio.

If you're more cautious, a higher weighting in income generating funds would be sensible, whereas the gung ho would have more in growth-focused funds.

DIVERSIFY

• Wealthy or hobbyist investors may choose to buy individual corporate bonds or shares but it usually makes most sense to invest in collective investment funds, where money from numerous investors is pooled and invested by a professional fund manager. Investors in these funds benefit not only from increased diversification but also economies of scale, effectively reducing both the trading costs and potential risks.

• For example, if you're getting little return from corporate bonds, you would hope the equities you'd chosen would be rising in value. When commodities are doing well, property may be struggling. It's all about striking a balance between asset classes so that one is always on the up.

CHOOSE YOUR FUNDS

• Once your asset allocation is decided it's time to choose your funds. It might be tempting as a UK-based investor to concentrate all your efforts on funds investing in what are perceived to be UK companies but this might not be sensible. In fact, given the current climate, you may well be advised to include some international exposure.

• Although funds investing in regions such as Latin America and Asia have done well in recent years they are higher risk and it may be more sensible to pick a fund that invests across the globe. Managers here will give you some exposure to those economies but won't bet your shirt on them. You also need to be confident your chosen fund manager can make you decent returns, but finding one that can perform consistently well can be a challenge.

MONITOR YOUR DECISIONS

• The process of building a portfolio mustn't end when you've invested your cash. To get the best from your investments you need to regularly review them, so read monthly updates from managers and do a proper review every six months.

• You shouldn't automatically ditch fund managers as soon as returns fall but it's useful to see if they have a justifiable reason for periods of poor performance. If a fund consistently underperforms its peers you may decide to switch.

CONCLUSION

• Finally, for investors that want a diversified exposure to a variety of fund managers and regions of the world, but are unwilling or lack confidence to do it themselves, an alternative option is investing in a multi-manager fund.

• Here, fund managers buy into other funds rather than individual companies in the hope that getting access to a wider range of fund management talent will result in better returns, increased diversification and lower risk.

REFERENCE

Building a balanced portfolio / Wikipedia

Morningstar .co.in / Balanced portfolio

Presented By,

Mahadeva prasad.m

2nd sem MFM

DOS in commerce

Manasa gangotri

mysore

Thank you