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All About Asset Allocation (Series: Personal Finance & Investing Fundamentals 2.0)

Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, alternative assets, and cash. The particular asset allocation that works best for an investor at any given point will depend largely on the investor’s time horizon and risk tolerate.

By investing in a mix of different asset classes which tend to have investment returns that rise and fall under different market conditions (that is, which are non-correlated to each other) within a portfolio, an investor can protect against significant losses. In other words, market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, you’ll reduce the risk that you’ll lose money and your portfolio’s overall investment returns will have a smoother ride.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/all-about-asset-allocation-2019/

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All About Asset Allocation (Series: Personal Finance & Investing Fundamentals 2.0)

  1. 1. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Insert the cover image for this webinar on this slide entirely 1
  2. 2. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Practical and entertaining education for attorneys, accountants, business owners and executives, and investors. 2
  3. 3. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DISCLAIMER The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure the information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. About this PowerPoint: if you are looking at this PowerPoint without the benefit of listening to the conversation that surrounded it then you are doing yourself a disservice. This PowerPoint was prepared in contemplation of being viewed in conjunction with listening to a one hour webinar on the topic 3
  4. 4. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MEET THE FACULTY Moderator: Jonathan Friedland – Sugar Felsenthal Grais & Helsinger LLP Panelists: Arthur Doglione – Alpha Fiduciary Randy Hardy – Clune & Associates Sang Lee – Darc Matter 4
  5. 5. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS WEBINAR: All About Asset Allocation Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, alternative assets, and cash. The particular asset allocation that works best for an investor at any given point will depend largely on the investor’s time horizon and risk tolerate. By investing in a mix of different asset classes which tend to have investment returns that rise and fall under different market conditions (that is, which are non-correlated to each other) within a portfolio, an investor can protect against significant losses. In other words, market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, you’ll reduce the risk that you’ll lose money and your portfolio’s overall investment returns will have a smoother ride. 5
  6. 6. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS SERIES: Personal Finance & Investing Fundamentals 2.0 This webinar series is intended for the investor who has a beginning to intermediate level of investing experience and knowledge. It assumes you know the difference between stocks and bonds, and the difference between investing in publicly traded stock and investing in a mutual fund that, in turn, invests in publicly traded stocks. It assumes further that there are good many things you do not know but which you are quite capable of picking up quickly. The series begins with fundamentals, such as the concepts of alpha and beta and how to approach reading financial statements and financial journalism. The series then turns to look closely at certain alternative investment objects of fascination: investment in VC/PE/HF (private equity, venture capital, and hedge funds) and investment in "hard" assets like real estate. 6
  7. 7. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EPISODES IN THIS SERIES 4/24/19 Episode #1: Alpha, Beta & Other Key Concepts 5/22/19 Episode #2: How to Read Financial Statements and Financial Journalism 6/19/19 Episode #3: All About Asset Allocation 7/24/19 Episode #4: More About Stocks 7 Dates shown are premiere dates. All webinars will be available On Demand approximately 4 weeks after they premiere.
  8. 8. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Episode #3: All About Asset Allocation 8
  9. 9. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ASSET ALLOCATION INTRO • Asset allocation is the balance of risk and reward among assets within a portfolio – Arguably more crucial than selecting individual securities – Simply put, asset allocation is the balance between risk and time • Based on three main traditional classes of assets: stocks, bonds, and cash (or cash alternatives) • Aims to create and balance a portfolio by setting target allocations for classes of assets, and re-allocate assets periodically over the life of the investment 9
  10. 10. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ASSET ALLOCATION INTRO (cont’d) • Portfolio’s risk and reward balance is unique to an individual’s goals, and is likely different from one investor to another – For example, an individual saving for a new car will likely have a more conservative balance than an individual saving for retirement years away • Inherent concepts of asset allocation include an investor’s time horizon and risk tolerance 1 0
  11. 11. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ASSET CLASSES • Asset class – a group of economic resources sharing similar characteristic (i.e. riskiness and return) – Traditional assets(most common) o Stocks (equities) o Bonds (fixed-incomed investments) o Cash or cash alternatives – Alternative assets o Real estate o Commodities o Derivatives (i.e. collateralized debt) o Private equity 1 1
  12. 12. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ASSET CLASSES (cont’d) • Stocks –value, dividend, growth, or sector-specific – Large-cap v. mid-cap – Small-cap v. micro-cap – Domestic v. foreign – International developed v. emerging v. frontier markets • Bonds – fixed income securities generally – Investment-grade or junk (high-yield) – Government or corporate – Short-term v. long-term • Cash and cash equivalents – Deposit account – Money market fund 1 2
  13. 13. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ASSET ALLOCATION STRATEGIES • Asset allocation strategies vary based on – – Investment goals – Income requirements – risk tolerance – Time horizon – Diversification • Common forms of asset allocation: – Strategic – Dynamic – Tactical – Core-satellite 1 3
  14. 14. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TIME HORIZON • The number of months or years an individual anticipates investing in order to achieve a specific goal • Determining a time horizon is important since most investments are directly related to economic cycles • No specific limits on time horizons, but for the sake of brevity, this focus will be on long- and short-time horizons 1 4
  15. 15. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe LONG TIME HORIZON • Generally, a young investor saving for retirement in 40 years, or an investor saving for a long-term purchase15 years in the future may have a longer time horizon and may feel more comfortable making a risker investment knowing they can wait out the ebbs and flows of the markets • In a long time horizon, an aggressive investment, such as stocks, usually offer greater investment rewards, but also bring greater risk – More time to recover from loss in this time horizon 1 5
  16. 16. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SHORT TIME HORIZON • Conversely, an investor saving for retirement in 5 years, or an investor saving for a short-term purchase, such as a vehicle, may have a shorter time horizon and can ill- afford to take on the risk of the markets during that time • If a drop in the market occurs, portfolio might not recover by the time investor needs the money • To reduce the risk of loss, cash, cash alternatives, or short-term bonds might be a better investment choices 1 6
  17. 17. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RISK TOLERANCE • Risk tolerance is the investor’s willingness to lose any portion of the investment for greater potential returns – Essentially, this is a risk-return tradeoff • An aggressive investor has a high-risk tolerance, and will risk losing more money in order to obtain a greater potential return • A conservative investor has a low-risk tolerance, and will likely attempt to preserve the original investment 1 7
  18. 18. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RISK TOLERANCE (cont’d) • Categories: – Conservative – the lowest possible return in exchange for the lowest level of risk to loss to the initial investment – Moderately conservative – a relatively low return in exchange for a relatively low level of risk to my initial investment – Moderate – a moderate rate of return in exchange for a moderate level of risk to my initial investment – Moderately aggressive – a moderately high return in exchange for a moderately high level of risk to my initial investment – Aggressive– the highest possible return in exchange for the highest level of risk of loss to the initial investment 1 8
  19. 19. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RISK TOLERANCE (cont’d) • An investor’s risk tolerance may change throughout the term of the investment, and may go through various categories • For example, while initially saving for retirement, a more aggressive approach might be favorable, but as one nears retirement, the risk tolerance will shift to a more conservative approach – Once in retirement, the risk tolerance may change yet again to generate income while growing the portfolio 1 9
  20. 20. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe RISK V. REWARD • The overall goal of asset allocation is to minimize risk while maximizing return • In order to capitalize on this, investors put a premium on understanding the risk- return characteristics of the classes of assets • Equities, such as stocks, have highest potential return, but also inherently carry highest risk • Treasury bills, backed by the U.S. government have the lowest risk, but also have lowest potential return 2 0
  21. 21. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe INVESTMENT ASSET CLASSES • Stocks – highest returns, but greatest risk among the three major investment choices • Bonds – offer more modest returns, but are less volatile than stocks • Cash and cash alternatives – safest investment choice, but offers lowest potential return 2 1
  22. 22. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe STOCKS • Stocks, also referred to as equities, are traded on the market in differing levels of risk and return • Stock capitalization refers to the company’s total market value – Small capitalization equities – highest risk level and highest return potential for stocks – Mid capitalization equities – moderate level of risk and return for stocks. – Large capitalization (blue-chip) equities – generally, the lowest level of risk and return for stocks 2 2
  23. 23. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SMALL CAPITALIZATION STOCK • "Small cap stocks”- stock of publicly traded companies with a market capitalization from $300 million to $2 billion • Small cap stocks usually have a higher stock price, but a smaller amount of shares • Typically, this is stock from smaller capitalized companies, making the investment the riskiest, in the event of the company failing, but the highest potential for return, if the company flourishes 2 3
  24. 24. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MID CAPITALIZATION STOCK • “Mid cap stocks” - stock of publicly traded companies with a market capitalization from $2-$10 billion • Mid cap stocks are attractive to investors because they provide a moderate level of security (risk) for investment, and usually are expected to increase in profits and market share • Typically included in portfolios to provide a balance of growth potential and stability 2 4
  25. 25. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe LARGE CAPITALIZATION STOCK • “Large cap stocks” (better known as “blue-chip stocks”) - stock of an established, finically sound company (i.e. Apple or Google) • Blue-chip stocks have survived many challenges and market cycles, usually making blue-chip stocks a safe and stable investment, as far as stocks are concerned 2 5
  26. 26. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BONDS • A bond obligates an issuer to pay the bondholder a specific sum over the term of the bond, and repay the principal amount at maturity • Bonds are a staple in portfolios to balance the volatility of more risky investments 2 6
  27. 27. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BONDS (cont’d) • Common types of bonds: – U.S. Treasury bonds – often thought of as the safest investment and commonly referred to as risk-free, backed by the U.S. government – Municipal bonds – issued by a state, county, or city to finance its capital projects, and carries with it a relatively low risk rate – Corporate bonds – usually accompanied by a credit rating, the level of risk usually corresponds with the credit rating o Investment grade – the highest credit rating, making these bonds less risky. o High yield – the lowest credit rating, and most risky. Also referred to as “junk bonds” 2 7
  28. 28. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe CASH AND CASH EQUIVALENTS • Cash equivalents are short-term investment securities that have a high credit rating, and are highly liquid, low-risk, low return • Examples include: – U.S. government treasury bills – maturity date of once year or less, the longer the maturity date, the higher the interest – Money market funds – usually only offer single digit returns, and have fees – Certificate of deposit (CD) – issued by commercial banks and provides a specific interest rate in exchange for a principal investment, in which the holder is restricted from withdrawing funds until the maturity date 2 8
  29. 29. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION INTRODUCTION • Diversification is an investment strategy that mixes various investment types within an asset class of a portfolio • Utilized to reduce unsystematic risk – Unsystematic risk is specific to a company or industry, such as regulatory changes – Conversely, systematic risk is risk that cannot be planned for or avoided 2 9
  30. 30. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION INTRODUCTION (cont’d) • Many investors use mutual funds to diversify, rather than investing themselves – A mutual fund is a company that pools money from investors and invests that money in securities – An investor buys shares in mutual funds and each share gives the investor part ownership in the fund and its income o Mutual funds have fund managers that do all the research for the investor 3 0
  31. 31. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION INTRODUCTION (cont’d) • 3 common types of diversification: – Passive – buy and hold approach, relying on the long-term success of the overall market. – Balanced– middle ground – Active– research for strategic buying and selling of stocks in attempts to outperform the market. 3 1
  32. 32. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION V. ASSET ALLOCATION • Asset allocation and diversification go hand-in-hand, but are, in fact, different concepts • Asset allocation refers to investing as a whole in different asset classes, while diversification is the process of balancing those specific classes to protect against market conditions • An investor may have excellent asset allocation but poor diversification 3 2
  33. 33. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION V. ASSET ALLOCATION (cont’d) • Asset allocation is the overarching types of assets in a portfolio and diversification involves the number of each of those assets within each category • Diversification provides another layer of investment protection to asset allocation by allowing the investor to invest in asset class subcategories, such as which industry sector, which company stock, or what type of bonds to invest 3 3
  34. 34. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe STOCK CORRELATION • What is stock correlation? – measures the degree to which two securities move in relation to each other o may be used to determine unique risk within an asset class o measuring the correlation among two asset classes is typically done by taking the long-term monthly returns of one asset class and comparing them to another – used in advanced portfolio management, o correlation coefficient (value that must fall between -1.0 and +1.0) – risk reduction benefits of diversification rely on correlation • Can measure movement of stock with that of a benchmark index (i.e. Beta) • Correlation is NOT causation 3 4
  35. 35. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe STOCK CORRELATION (cont’d) • A “perfect positive correlation” means correlation coefficient is exactly 1 – Implies that as one security moves, either up or down, the other security moves in lockstep, in the same direction • A “perfect negative correlation” – Implies two assets move in opposite directions • A “zero correlation” – Implies no relationship at all • For example – – Large-cap mutual funds generally have a high positive correlation to (S&P) 500 Index - very close to 1 – Small-cap stocks have a positive correlation to that same index, but it is not as high - generally around 0.8 3 5
  36. 36. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe STOCK CORRELATION (cont’d) • Note, however, put option prices and their underlying stock prices will tend to have a negative correlation – Put option - option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time frame – Implies that as stock price increases, the put option prices go downdirect and high-magnitude negative correlation 3 6
  37. 37. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF A STOCK PORTFOLIO • 3 methods for 3 types of investors • Passive method – buying market indexes or mutual funds – Investor has very little time to devote to understanding stocks and want to automate investment strategy while minimizing risk – Recommend – dollar-cost average into a single low-cost index fund or several different low-cost index funds o dollar-cost average = investing the same amount each month -- no matter what the market does ✓enables investors to avoid market timing; and ✓reduce the risk of sinking an outsize sum of money into stocks before a market downturn 3 7
  38. 38. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF A STOCK PORTFOLIO (cont’d) • Balanced method – middle ground on big bets on just a handful of stocks and index fund investing – Investor has a basic understanding of stocks and is willing to do limited research to identify good companies to invest in – Investor picks stocks versus buying index funds o Can choose stock and diversify ✓Limited use of diversification o Investing similar amounts of money into each stock in a portfolio, spreads risk across each of the companies in a portfolio 3 8
  39. 39. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF A STOCK PORTFOLIO (cont’d) • Active method – Invest in a handful of successful businesses – Investor has excellent understanding of stocks, financial statements, and methods for valuing stocks. o Reads companies' quarterly and annual financial statements and listen to earnings calls; and o spends 5-10 hours a week analyzing companies – diversification not recommended here o Diversification = 1 / Confidence – handful of very good stocks 3 9
  40. 40. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF AN INVESTMENT PORTFOLIO • Asset allocation - involves dividing an investment portfolio among different asset categories – i.e. stocks, bonds, and cash • Determining which mix of assets to hold in your portfolio is personal – depends on the following: – Time Horizon – expected number of months, years, or decades you will be investing to achieve particular financial goal – Risk tolerance – ability and willingness to lose some or all of your original investment in exchange for greater potential returns 4 0
  41. 41. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF AN INVESTMENT PORTFOLIO (cont’d)• Investment choices – a vast array of investment products exists, including: – stocks and stock mutual funds; – corporate and municipal bonds; – bond mutual funds; – lifecycle funds; – exchange-traded funds; money market funds; and – U.S. Treasury securities. • For the majority of financial goals, investing in a conglomeration of stocks, bonds, and cash may be a good strategy 4 1
  42. 42. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF AN INVESTMENT PORTFOLIO (cont’d) • 3 major asset categories – – Stocks o greatest risk and highest returns among the three major asset categories o offering the greatest potential for growth o volatility makes them a very risky investment in the short term – Bonds o less volatile than stocks but offer more modest returns o high-yield or junk bonds = higher returns but higher risk 4 2
  43. 43. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF AN INVESTMENT PORTFOLIO (cont’d) – Cash or cash equivalents ( i.e. savings deposits, certificates of deposit, treasury bills, etc.) o safest investments but offer lowest return o federal government guarantees many investments in cash equivalents o main concern for investors investing in cash equivalents is inflation risk 4 3
  44. 44. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF AN INVESTMENT PORTFOLIO (cont’d) • Diversification – “don’t put all your eggs in one basket” – practice of spreading money among different investments to reduce risk • Diversified portfolio should be diversified at 2 levels: – between asset categories; and – within asset categories • Spread out your investments within each asset category – key is to identify investments in segments of each asset category that may perform differently under different market conditions o i.e. identify and invest in a wide range of companies and industry sectors 4 4
  45. 45. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF AN INVESTMENT PORTFOLIO (cont’d) • Because achieving diversification can be so challenging, some investors may find it easier to diversify within each asset category through the ownership of mutual funds rather than through individual investments from each asset category – A mutual fund – a company that pools money from many investors and invests the money in stocks, bonds, and other financial instruments o make it easy for investors to own a small portion of many investments – i.e. total stock market index fund – Note, however, a mutual fund investment doesn’t necessarily provide instant diversification, especially if the fund focuses on only one particular industry sector 4 5
  46. 46. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF AN INVESTMENT PORTFOLIO (cont’d) • “Lifecycle Fund” – diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its “target date” – i.e. retirement fund • Investor picks a fund with the right target date based on his or her particular investment goal • Managers of the fund then make all decisions about asset allocation, diversification, and rebalancing 4 6
  47. 47. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIVERSIFICATION OF AN INVESTMENT PORTFOLIO (cont’d) • Rebalancing - bringing your portfolio back to your original asset allocation mix • 3 ways to rebalance your portfolio: – sell off investments from over-weighted asset categories and use the proceeds to purchase investments for under-weighted asset categories – purchase new investments for under-weighted asset categories – alter continuous contributions so that more investments go to under-weighted asset categories until portfolio is back into balance • Note: consider whether the method of rebalancing you decide to use will trigger transaction fees or tax consequences 4 7
  48. 48. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe REBALANCING • Rebalancing is the process of realigning the weight of percentages of a portfolio of assets over time • This process involves the buying or selling of particular assets to achieve a desired level of asset allocation • Rebalancing commonly occurs annually, and may become more important as the investor nears the target date of the investment 4 8
  49. 49. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe REBALANCING (cont’d) • Over the term of the investment, some investments may stray from alignment with your goals • Some investments will grow faster than others, and some may perform poorly • This ensures that your portfolio does not overemphasize or underemphasize an asset category • If an investor realizes a large percentage of assets held within a specific stock based on strong market performance, the investor may rebalance the allocation to another investment to protect against future market cycles 4 9
  50. 50. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe REBALANCING (cont’d) • Common ways to rebalance a portfolio: – Sell off over-weighted asset investments and allocate that money to purchase investments in the under-weighted categories – Purchase investments for under-weighted categories – Allocate investment contributions to under-weighted asset categories in the portfolio until it is back in balance 5 0
  51. 51. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TARGET-DATE FUND • A target-date fund is a fund that grows assets over a specific period of time • These funds are a type of mutual fund, but as the name suggests, are structured based on the investor’s capital need at a specific target date in the future – Typically, this is a longer time horizon • Target-date funds are common for retirement planning or a child entering college 5 1
  52. 52. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TARGET-DATE FUND (cont’d) • A target-date fund’s portfolio manager uses asset allocation to fulfill the investor’s predetermined time horizon • The fund manager will use the target date to apply the correct degree of risk for the fund, and invest in other funds that match the given degree of risk • The fund’s asset allocation becomes more conservative as the target date approaches • As a result, the fund risk levels and asset allocations are usually readjusted annually 5 2
  53. 53. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PROBLEMS WITH ASSET ALLOCATION • Investor behavior is inherently biased – Investor chooses asset allocation, but implementation may be a challenge • Investor’s risk tolerance is not knowable ahead of time – Risk tolerance is fluid based on the investor’s feeling and is subject to fear and greed of economic fluctuation • Security selection within asset classes does not necessarily produce a risk profile equal to the asset class 5 3
  54. 54. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THE FACULTY 5 4
  55. 55. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Jonathan Friedland – jfriedland@sfgh.com Jonathan Friedland, a senior partner with Sugar Felsenthal Grais & Helsinger, LLP, views his job simply: to make money for clients whenever possible and to protect their interests at every turn. Licensed in four states, Jonathan’s transactional work focusses on representing private funds and other owners of private businesses, and the businesses they own. He regularly advises on M&A activities, structuring new ventures and restructuring old ones, and on other commercial relationships. Jonathan is rated AV® Preeminent™ by Martindale-Hubbell, 10/10 by AVVO, and enjoys several other similar distinctions. Jonathan graduated from the State University of New York at Albany, magna cum laude (in three years) and from the University of Pennsylvania Law School. He clerked for a federal judge before entering private practice and served for several years as an Adjunct Professor of Strategic Management at the University of Chicago’s Graduate School of Business. Jonathan is lead author and editor of several significant treatises, several chapters in other treatises, and scores of articles on law and business. 5 5
  56. 56. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Arthur Doglione – arthur@alphafiduciary.com Arthur is an industry veteran with more than 20 years’ experience working with high-net-worth clients. He has an extensive background in wealth management with particular expertise in portfolio management. Before establishing Alpha Fiduciary, Art was a Senior Vice President with Merrill Lynch where, prior to leaving in November 2006, had built his practice to be the largest of Merrill Lynch’s Arizona territory. Art founded Alpha Fiduciary in 2006, and has completed two acquisitions. The firm currently serves clients across many states as a fee-only Registered Investment Advisor (RIA). As president, Art has assembled a team of experienced, credentialed professionals at Alpha Fiduciary to execute on its mission of helping clients achieve their optimum financial life. The firm’s approach combines prudent financial planning with an investment style focused primarily on low-cost “passive” investment solutions. The Investment Committee also seeks to enhance returns or diversification of its passive portfolio by adding a smaller number of carefully selected actively managed funds. Alpha Fiduciary has a fiduciary responsibility to its clients, and this means you can be sure we only serve one master: our clients. In addition, Art has taught a six-week wealth management course at UCLA Extension several times. This coursework was designed to educate investors by providing a framework whereby business principles are applied to the investment process, which in turn provides a greater understanding of the key areas of risk and performance that can shape investment returns. This education is founded in Art’s fiduciary focus and desire to improve the quality of the individual investors investment decisions. 5 6
  57. 57. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Randy Hardy – randy@clune.biz Randy Hardy is a Vice-President and Principal of Clune & Associates – a boutique private wealth management firm. Besides working directly with clients, Randy also handles CIO duties for the company. Randy holds the Chartered Financial Analyst designation (CFA), and has been actively engaged in the investment management and financial planning industry since 1999. He is also Certified Financial Planner (CFP)™. Prior to joining Clune & Associates in 2009, Randy spent 10 years working for Loring Ward, a North American portfolio management and wealth management firm. While with Loring Ward, Randy lived in Toronto, Vancouver, Los Angeles, San Jose, and New York City. He was an Executive Vice-President responsible for business development and was also a member of their Investment Committee and its Executive Management Group. Randy has been a featured speaker at numerous investment management conferences and events on topics including investment management, portfolio management and financial planning. 5 7
  58. 58. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Sang Lee – sang@darcmatter.com Sang H. Lee is the CEO and founder of DarcMatter, an online investment platform providing retail investors transparent and institutional-level access to alternative investments. DarcMatter’s model aggregates and administers individual investments as a single LP, providing financial advisors and retail investors with access to venture capital, private capital, and hedge funds. Formerly an investment banker in the energy field at WestLB and BNP Paribas, Sang has accrued a wealth of expertise in financial regulation, business, and financial structuring. He has significant experience in the advisory and execution of more than $10.0 Bn equivalent of energy transactions in North America. During his career, Sang was focused on structuring, credit analysis, documentation and deal execution for complex transactions involving multiple investor groups, institutional investors, and financing products from major investment banks. In addition to serving as the President of KSE (Korean Startups and Entrepreneurs), Sang has been featured in both domestic and international publications including Forbes, Huffington Post, Entrepreneur Magazine, CNBC, Fast Company, Crains, and L’Express. Sang was also recognized as an ‘Under30CEO Entrepreneur to Watch in New York City’ and a “GOOD100” leader.Sang has been invited to speak at the UN, International CES, National Science Foundation, and the Council on Foreign Relations. 5 8
  59. 59. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe QUESTIONS OR COMMENTS? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 5 9
  60. 60. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT FINANCIAL POISE DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. Its websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com. 6 0 Our free weekly newsletter, Financial Poise Weekly, educates readers about business, business law, finance, and investing. To receive it simply add yourself by going to: https://www.financialpoise.com/newsletter/ Email addresses are never sold to or shared with third parties.

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