Part A: Portfolio Management Objectives
The purpose for investing this money is to get higher returns in future. Another reason for investing the money is to reduce risk through diversification and also to maintain the purchasing power especially during inflation. My investment horizon will take a period of five years. (Feibel and Bruce 174)
The types of security which can best help me achieve the above set objectives are stocks. This is because, stocks can produce huge returns. I am planning to set certain parameters for the percentages of the securities I am willing to invest in various media. The amount that I will be willing to invest in will be limited to $4,000,000.
I do not intend to be very active in the management of this portfolio. This is because, being very active could make me to make bad investment choices or follow an unstable theory in the management of the portfolio. Again, active management of the portfolio will require huge amount of money which I may not be able to provide. Furthermore, active portfolio management is likely to increase the transaction costs hence reducing the amount of return.
I believe that the degree of risk associated with investing in stocks is very high. Some of the risks can be controlled while others can just be guarded. Some of the risks include: economic risks which area associated with inflation and the market value risk which occurs when the market ignores your investment. I intend to diversify my risks however I do not intend to concentrate in particular industries.
Part B: Security Selection Strategy
Security selection technique is a method used to select the type of securities to be included in the portfolio. The technique which I will use will consider certain fundamental factors such as risk and return of the security selected. Therefore, the security with higher returns and lower risks will be considered for my case. So, the technique which I will employ is the stock screening model. The models are typically built in Microsoft excel and it helps investors to determine the type of stock security in which to invest in. (Rad and Levin 74)
Part C: Investment Background and Experience
I have vast experience in investing having invested my shares in the stock exchange market for a period of five years. Some other security markets which I have experienced include the stock market, the bond market and the money market.
Feibel, Bruce. J. “Investment Performance Measurement” New Jersey: John Wiley & Sons, 2003. 174.
Rad, Parviz F. Levin, Ginger. “Project Portfolio Management: Tools and Techniques”. New York: www.iil.com/publishing, 2006. 74.