Stock track portfolio

I intend to take some risk with my investments. I will accept the long-term capital growth, which is aggressive, and understand the risks. I want to invest in a combination of stocks and bonds but I do want to have more stocks than bonds at the end of investment period because that will help me with a quick return. I will anticipate having a 50/50 allocation which I will have to review weekly and then adjust them where necessary, but because of my age I figured that I am still young and have allocated money to be aggressive with my current investment. With time I intend to adjust the allocation of the funds so that I will have invested 75 percent for stock and 25 percent for bonds by the close of the period.  I plan on reviewing and monitoring my investments at this time weekly to confirm that I am making good investments with my money. This change is important since it will allow me to know at what time to get in or out of particular stocks, and the adjustment will ensure that to a great extent I am able to be optimally invested in the best class of asset.

This allocation strategically aim at providing a long-term investment which is anchored to future investment objectives subject to certain market constraints and restrictions. Normally the level of returns in the long term investments depend on the policy for strategic allocation of asset. The key to having a successful asset investment of my funds is obtaining the right mix of bonds and stocks. While this strategic allocation is concerned with long term returns, it allows for the necessary changes in allocation considering that the future is bound to come with a lot of risks that allow can face any combination of investment. In a typical market, many of the risks will come from equities and also the greater returns will be realised where the risk is high. In reality, equities have performed well in the long term than the bonds. Investing a single dollar in the U.S stock market has overtime brought in 40 times more as compares to the returns of bond. This is the reason I chose to adjust allocation to 75 percent of the funds to the stock and 25 percent in bonds (Ibbotson, 2009). The current market requires that allocation framework for asset to be flexible. This is important because the performance of different assets will be different at various stages in an economic cycle. The allocation can be reviewed weekly and then adjusted accordingly. The aim will be to steadily overweight the asset class that is performing better or the one with poor performance. If the performance of the stock in terms of returns is not good, they can be underweighted and the bonds can then be over weighted if their returns are better. Of more importance is that within this period of a particular week, the allocation to stock or bond can be increased to 100 percent or even be reduced to zero. Thus the portfolio will always be wholly invested, so that the proportion of both the bond and stock will amount to 100 percent at any time of the week.

Given that the prices of the stocks are low at the beginning of the June period, the prices of the stocks are bound to increase, meaning that the risk of making losses is lower but there is high probability of the stocks bringing in returns. Since stock represent ownership of the firms, they allow a chance for taking an influential position in the market. Stocks prices can be tracked in the long term by use of the market index values, which normally  represent the whole stock market and thereby keep track of the changes in the over given period of time. It is possible for me as an investor to track changes in the market price of the stocks in the value of the index overtime and then use it as a yardstick against which the returns of the portfolio will be compared. Furthermore, stocks provide the greatest probability or potential for growth or capital appreciation in the long run. If I choose to stick with the stocks for a long period considering my young age the chances that I will be rewarded with high, positive returns. On the other hand, bonds will serve as a safe haven for my funds since am just an incoming investor in securities. The safety in bonds comes from the fact that investors in bonds have a priority over the shareholders. Thus, in case the companies go bankrupt, the debt holders will receive their payments first. This means that risk associated with bond investments are very minimal and although the returns are not much, there is an assurance that there is no possibility of a total loss for the whole of my funds. Investment partly in bond contribute a sense if stability to this portfolio since they are safe and allow for a conservative investment. They will give me a predictable stream of income in the periods when the stocks are performing poorly and generally they are a great mean of saving so that all the funds are not at risk.

My portfolio performance for the period closing at 2nd June 2016 stood at 1.18 percent for both the stock and bonds traded in the market. At the same period of the week the performance of the stock as per the American Stock Exchange composite index, the overall performance of stock market or the proportion change in the market stood at 1.04. The portfolio performance was beyond the overall performance of the stock market in the same period but performance of the bonds was below the expectation

The performance of the stock portfolio was generally good. With most of the stocks performing above and the highest returns hitting 17.22 percent for Sam 994, the investment in stocks was a better option in the short term. However, the mistake I made was failure to balance the allocation of the funds between stock and bonds so that at the close of the investment period, more funds are available for investment bonds as a long-term measure. Also most of the trades were done on the low performing stocks and this led to a very low return of -12.57 percent for Lizhang in the portfolio. Given another opportunity, I would diversify among the different classes of best performing stocks in the market since different classes of assets will react differently to adverse economic condition. Since am still young I would ensure enough allocation in the bond market more as I gain experience with stock market. I have come to learn that the movement of equity and bond markets are usually opposite in direction so that if a portfolio is diversified across the two areas, the unfavourable movements in one is offset by the pleasant results.

 

References

 Ibbotson, R., (2009). Are Bonds Going to Outperform Stocks 

Over the Long Run? Not Likely. Yale School of Management. 1-6