My Portfolio Management 2
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PORTFOLIO MANAGEMENT ROGELIO R. MAGANTE JR.
CASE: Rogelio Magante Jr. OVERVIEW: • Single, 36 yrs. Old, 29 yrs. To retirement. • Started working on Federal Express since July 2005. • Salary of P180,000 per year pays all current expenses and leaves P36,000 savings in 1 and ½ years. • Has saved P173,000 in cash equivalent. • Excellent health: employer-paid health insurance until December 2008. • Has a life insurance with a face amount of P300,000. • Taxes at 35%, to continue in the future. • 4% inflation to continue in the future. • Would accept a 3% real after-tax return on investment, with only less than 10% annual downside risk. • Would received a separation pay amounting to P144,000 on December 2008.
CASE: Rogelio Magante Jr. Objectives: • Return investment- by the time of retirement should earn P561,000 annually on investment. • Return requirements gross of tax and inflation is 10.8%. By retirement, will have P1,307,588 assuming the P36,000 & P173,000 earns 10.8% + P144,000 to be invested in stocks + P300,000 insurance. • To earn P561,000 annually, his P1,007,588 should yield 43% pa. • Risk Tolerance – average to above average risk tolerance – acceptable downside risk less than 10%
CASE: Rogelio Magante Jr. • Constraints Time horizon
Multi-stage: 1st stage: before retirement 2nd stage: retirement
Liquidity
Minimal; salary meets expenses, no healthcare cost concerns, no planned needs for cash even after Federal Express relocation.
Taxes
35% tax rate; careful tax planning is necessary.
Laws & regulations
bound by insider trading rules because of investment on stocks.
Stock shares dominate portfolio; exit strategy Unique for stock shares should be developed as soon circumstances as is practical and appropriate.
CASE: Rogelio Magante Jr. • Constraints Unique Relocation of hub on December 2008. Circumstances Unforseen events
Possible things that may occur unpredictably.
CASE: Rogelio Magante Jr. Asset Class
Projected return (%)
Expected σ
A
B
C
D
E
Cash equivalents
6.5
3
10
5
20
0
10
Sunlife
11.97
2.02
20
25
30
25
30
Small cap stocks
18.0
51.0
30
35
0
25
30
Venture capital
33.0
0
40
35
50
50
30
100
100
100
100
100
Total
Asset Allocation (% weight)
CASE: Rogelio Magante Jr. • ASSET ALLOCATION ALTERNATIVES A Projected return
B
C
D
E
21.64% 21.16% 21.39% 23.99% 19.54%
Projected 14.06% 13.76% after-tax return
13.9% 15.59% 12.70%
Real after-tax return Expected σ
10.06%
9.75%
9.9%
11.59% 8.70%
16%
1.85%
1.21% 13.25% 1.62%
CASE: Rogelio Magante Jr. •
Acceptable worst-case return is 10% or lower
A
B
C
D
E
21.64
21.16
21.39
23.99
19.54
Expected σ
16
1.85
1.21
13.25
1.62
Worst case return (expected return – 2σ)
-32
-3.7
-2.42
-26.5
-3.24
Expected return
CASE: Rogelio Magante Jr.
CASE: Rogelio Magante Jr. OVERVIEW: • Single, 36 yrs. Old, 29 yrs. To retirement. • Started working on Federal Express since July 2005. • Salary of P180,000 per year pays all current expenses and leaves P36,000 savings in 1 and ½ years. • Has saved P173,000 in cash equivalent. • Excellent health: employer-paid health insurance until December 2008. • Has a life insurance with a face amount of P300,000. • Taxes at 35%, to continue in the future. • 4% inflation to continue in the future. • Would accept a 3% real after-tax return on investment, with only less than 10% annual downside risk. • Would received a separation pay amounting to P144,000 on December 2008.
CASE: Rogelio Magante Jr. Objectives: • Return investment- by the time of retirement should earn P561,000 annually on investment. • Return requirements gross of tax and inflation is 10.8%. By retirement, will have P1,307,588 assuming the P36,000 & P173,000 earns 10.8% + P144,000 to be invested in stocks + P300,000 insurance. • To earn P561,000 annually, his P1,007,588 should yield 43% pa. • Risk Tolerance – average to above average risk tolerance – acceptable downside risk less than 10%
CASE: Rogelio Magante Jr. • Constraints Time horizon
Multi-stage: 1st stage: before retirement 2nd stage: retirement
Liquidity
Minimal; salary meets expenses, no healthcare cost concerns, no planned needs for cash even after Federal Express relocation.
Taxes
35% tax rate; careful tax planning is necessary.
Laws & regulations
bound by insider trading rules because of investment on stocks.
Stock shares dominate portfolio; exit strategy Unique for stock shares should be developed as soon circumstances as is practical and appropriate.
CASE: Rogelio Magante Jr. • Constraints Unique Relocation of hub on December 2008. Circumstances Unforseen events
Possible things that may occur unpredictably.
CASE: Rogelio Magante Jr. Asset Class
Projected return (%)
Expected σ
A
B
C
D
E
Cash equivalents
6.5
3
10
5
20
0
10
Sunlife
11.97
2.02
20
25
30
25
30
Small cap stocks
18.0
51.0
30
35
0
25
30
Venture capital
33.0
0
40
35
50
50
30
100
100
100
100
100
Total
Asset Allocation (% weight)
CASE: Rogelio Magante Jr. • ASSET ALLOCATION ALTERNATIVES A Projected return
B
C
D
E
21.64% 21.16% 21.39% 23.99% 19.54%
Projected 14.06% 13.76% after-tax return
13.9% 15.59% 12.70%
Real after-tax return Expected σ
10.06%
9.75%
9.9%
11.59% 8.70%
16%
1.85%
1.21% 13.25% 1.62%
CASE: Rogelio Magante Jr. •
Acceptable worst-case return is 10% or lower
A
B
C
D
E
21.64
21.16
21.39
23.99
19.54
Expected σ
16
1.85
1.21
13.25
1.62
Worst case return (expected return – 2σ)
-32
-3.7
-2.42
-26.5
-3.24
Expected return
CASE: Rogelio Magante Jr.
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