Need busienss and finance help with a Project – Investment Portfolio

 You are an investment professional and are advising a client on investing $100,000.

 Portfolios will be constructed using a “top-down” approach.  In a top-down approach the first decision an investor makes is their asset-class weights.  The top-down investment approach looks at the big picture – macro economic variables, the global economy, inflation and interest rates, commodity prices, etc.  For example if consumers are feeling more secure in their financial future then an investment in the “Consumer Discretionary” sector might be appropriate.  Alternatively if the price of oil is rising, investing in airline companies or automobile manufacturers may not be wise.  The major asset classes that you will consider are: US Stocks, Bonds, International Securities, and Cash.

A portfolio’s allocation is typically based on an investor’s financial situation, risk tolerance,and time horizon.  Alternatively, portfolio construction decisions are based on an economic forecast. The latter will apply for this project.

The Beige Book is published eight times per year by the United States Federal Reserve Board and is a gathering of “anecdotal information on current economic conditions” gathered by each Federal Reserve Bank from key businesses, economists, market experts, and others.  The current Beige Book report will be the primary source of United States economic information for your asset allocation and security selection decisions.  The Beige Book can be found at:

Although the majority of your portfolio is US-based, developing a global forecast is important. The World Bank publishes a report entitled “Global Economic Prospects.” The International Monetary Fund publishes “World Economic Outlook.” There are many other Web resources that will help you determine an appropriate allocation to international securities.

The next step of the process is sub-asset allocation.  For stocks, what sectors are attractive, what market capitalizations offers the best risk return trade-off, etc. The same process is employed for bonds, international securities and cash.  It is important to keep in mind that broad diversification, with exposure to many assets is a powerful strategy for managing portfolio risk.

Once your asset allocation and sub-allocation decisions are made you will select securities for your portfolio.  Securities should be combined to form a complementary and cohesive portfolio. Mergent Online will be your primary source of information regarding US stocks.  Mergent Online is a very powerful tool with high-quality, reliable financial information.  The database can be found in the Empire State College Online Library.  There is an online tutorial which will guide you through using the database.

Your paper should be at least 7 pages, double-spaced. Organize your paper logically with headings for each major section.  You must also include a descriptive chart of your fundamental analysis and pie charts (or bar charts) of your asset allocation and sector diversification.

Portfolio Guidelines

         Four Asset Classes:

                                                             % of  Portfolio

  Cash                                                   5 – 20%   

  Fixed Income                                      5 – 20%

  US Equities                                         50 – 85%

  International Securities                       5 – 20%

The S&P 500 is your universe of stocks.  The major sectors of the index are:  Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Telecommunications Services, and Utilities.  They are many sources on the Internet to research the constituents of the index. Wikipedia has a sortable database that can be found: Online is an excellent tool for fundamental and sector analysis.  Select three stocks from eight different sectors for analysis (total:  24 stocks).  Create a chart showing three stocks per industry side-by-side and report and analyze the following: gross and operating margins, net profit margin, return on equity, return on assets, current ratio, debt to equity ratio, and any other relevant data.  Choose the ‘best’ stock from each industry.  These eight stocks represent the equity portion of your portfolio.

For the international component of your portfolio use Exchange Traded Funds. Analyze and report on at least three ETFs. For the fixed-income portion of your portfolio use mutual funds.  Analyze and report on at least three funds.  For the cash portion of your portfolio recommend a money market account, U.S. Treasury bills, savings account, or some other cash equivalent.

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