Note: Present value is equal to sum of future Cash flows discounted.
Ways to find foreign stocks/ bonds
- Buy them directly
- Mutual funds
- ETFs ( Exchange traded funds): before ETFs, we had ADRs which are American deposit receipts .
Reasons for investing in global portfolios:
- More choices
- More returns
Fixed income markets are much larger than equities market
1998-2008 known as the” lost decade”.
Note: in canada: govt bonds and t bills have relatively lowest return and lowest risk as per S.D
Followed by invest grade corp bonds, large cap equities, small cap equities.
The small cap equities would have the largest return , however the highest volatility or SD
Note: all investment in indices that have returns above the SML is a good investment
1935 – 2012 If you invest $1 in 1935
- On the U.S stock would generate : 10.7%
- CDN Equities : 9.8%
- Balanced portfolios : 8.7% ( 60% equities, 40% bonds)
- International Equities ( outside of North America) : 7.9%
- Corporate bonds 6.6%
- T- bills 4.7%
- Inflation 3.7%
1. Preliminaries: they have to have life insurance, non- life insurance and cash reserve ( e.g. TFSA)
2. Look at investor’s life cycle :
- Accumulation phase
- Consolidation phase
- Spending phase/ gifting phase Portfolio management process
1. Policy statement
2. Examine current and projected market analysis
3. Implement the plan by constructing the portfolio
4. Feedback loop: monitor and update
Clarifies all information and details for both portfolio manager and the