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FUNDO de PENSÕES. Member Briefing Session. Investment Basics. Risk and Return. Asset Classes. Correlation. Inflation Risk. Concentration Risk. Market Timing Risk. Major Type of Risks. Maintaining your purchase power – a can of soft drink worth $3 10 years ago and now worth $6. - PowerPoint PPT Presentation
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W W W . W A T S O N W Y A T T . C O M
FUNDO de PENSÕESMember Briefing Session
2
Investment Basics
Risk and Return
Asset Classes
Correlation
3
Major Type of RisksMaintaining your purchase power – a can of soft drink worth $3 10 years ago and now worth $6.
Inflation Risk
Concentration Risk
Market Timing Risk
Diversifying your investment – Investing in one stock has higher risk than investing in two or more stocks
Consistent investing – excessive timing the market would result in “buying high and selling low”
4
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00%Expected Risk (% p.a.)
Expected Return (% p.a.)
Risk and Return
Money Market
Global Bonds
Global Equities Higher Returns
Higher Risks
Source: WW Asset Model
5
100% 100% 100% 100%100%
-100%
0%
50%
-100%
-50%
0%
50%
100%
Correlation - Example
= Stock A
= Stock B
Perfect Positive Correlation
Perfect Negative Correlation
Perfectly Uncorrelated
Partially Correlated
6
Risk Management
Capital Appreciation
Diversification
Market Timing
7
0
50
100
150
200
250
300
350
400
Aug-
92
Aug-
93
Aug-
94
Aug-
95
Aug-
96
Aug-
97
Aug-
98
Aug-
99
Aug-
00
Aug-
01
Aug-
02
Aug-
03
Aug-
04
Aug-
05
Equity Bond Inflation Bank Deposit
Manage Inflation Risk
$350
$221
Inflation Risk can be mitigated by investing in Equities and Bonds
$148$130
8
Global Equities and Global Bond Invest in various stocks
– Region (US, Japan, Europe, Asia …)– Sector (Financial, Energy, Technology, Consumer …)– Companies with different attributes
Invest in various types of bonds– Region (US, Japan, Europe, Asia ...)– Type (Corporate, Government …)– Maturity (short and long term …)– Credit Rating (various credit ratings)
Risk of specific single entity is diversified
9
Consistent InvestingConsistent Investing = Monthly
Investment $ $ $ $ $
Accounts2006 2042
Long Term Perspective
+
2006 2042
36 years of investment horizon
+
Appropriate Asset Classes
0
50
100
150
200
250
300
350
400
Aug-
92
Aug-
93
Aug-
94
Aug-
95
Aug-
96
Aug-
97
Aug-
98
Aug-
99
Aug-
00
Aug-
01
Aug-
02
Aug-
03
Aug-
04
Aug-
05
Equities Bonds
Money Market
10
Investment Strategies
Thinking Process
Barbell Strategy
Dollar Cost Averaging
11
How much are you saving?MOP$15,000
21%
12
X
X
X
36
Estimated Future Savings *
Monthly Income
21%
12
X
X
XNumber of years until retirement
* Only serves as a reference
This formula aims to assess how much money you can save until retirement
Assumptions: Salary Inflation = Investment Return = Inflation
MOP$1,360,800
12
How much do you need?
* Only serves as a reference
This formula aims to assess how much money you need at retirement to maintain your expenditure
MOP$15,000
60%
12
X
X
X
15
Estimated Savings Needed*
Monthly Income
60%
12
X
X
XNumber of years
lived after retirement
MOP$1,620,000
13
Implementation When extended to equity or multi-asset investments, the
barbell strategy means balancing the risk of investments by investing at two ends of the risk spectrum
Global Equity Global Bond
Money Market
High Risk Assets Low Risk Assets
14
Dollar-Cost-AveragingMonth $ / Share Amounted
InvestedShares Purchased
January 18 1,000 1,000 / 18 = 55February 9 1,000 1,000 / 9 = 111March 15 1,000 1,000 / 15 = 66Total 3,000 55 + 111 + 66 = 232
Average Market Price
Sum of share prices (18 + 9 + 15) Frequency (3)
=
Average COST per share
Total amount invested ($3,000) Total no. of shares purchased (232)
= =$12.9
=$14.0
15
Portfolio Management
Switching Arrangement
Monitoring Framework
Post Retirement Management
16
-20
-10
0
10
20
30
40
Cumulative Return (%)
Switch at the Right Time?
Balanced Option
2000 2005
Switch future contributions to conservative option
17
-20
-10
0
10
20
30
40
Cumulative Return (%)
Balanced Option
Switch at the Right Time?
11%
2000 2005
Switch all balances to conservative option
18
-20
-10
0
10
20
30
40
Cumulative Return (%)
Switch at the Right Time?
35%
2000 2005
Balanced Option
19
Should I switch or not? Switch depends on your own profile, not the market Buy high and sell low Bear the transaction cost
Remember it’s long term investing!
20
Retirement - Is it the end? Run the inflation risk Re-invest the benefits Low risk asset classes
You are likely to live for many years after retirement!
W W W . W A T S O N W Y A T T . C O M
Thank You
The presentation is not intended for stock picking and does not represent MACAO SAR’s view
22
Preserve your gain!Return
Age25 35 45 50 60 65
Aggressive Aggressive Balanced Conservative Conservative
90% Equities
10% Bonds
0% Cash
Aggressive AggressiveAggressive
50% Equities
30% Bonds
20% Cash
30% Equities
40% Bonds
30% Cash
100% Cash
23
Your moneys are saved!
You
Macao SAR Government
Trustee (Macao SAR Government)
7%
14%
Administrator (Macao SAR Government)
Custodian Investment Managers