Objective of the portfolio
In determining the security or bonds to be allocated in a portfolio, investors use different strategies to classify their asset allocation into various classes and subclasses that yield different risks and potential returns as well. For instance, in the above portfolio, the equity bond portion has been divided based on long-term security allocation basis thus differentiating between sectors and market markup. However, factors such as coupon, maturity, rating and general interest rate environments have taken into consideration while choosing the appropriate bonds to be allocated.
Diversified Portfolio of Stock
Keeping a balanced and diversified portfolio of securities requires more than the understanding of the fluctuating stock market conditions. Therefore, to keep the portfolio diversified, an investor is required to reassess portfolio weightings of the actual asset allocation and quantitatively categorize the $250,000 investment into the required proportion to the whole (Chris Gallant).
Reducing Market Risk
To reduce the market risk that is often caused by the fluctuating market financial situation, future needs, and risk tolerance, the investor needs to rebalance the portfolio periodically due to the market tidings that mostly affect the weightings to change over time.
Therefore, in case of;
An increase of interest rate, then there would be a reduction in bond values whereas a decrease in the interest rates will increase the existing bond values.
A recession is a regime or broad-based declines in economic activities. Lower business activity means a slowed employment and retail sales that lead to lower corporate profits and stock prices. As such, a recession affects the value of a portfolio based on its severity since the price of a bond rises as its yield and subsequently drops when its yields increases.
Rapid Inflation leads to increased short-term interest rates in the US Federal Reserve to help reduce the demand for credit and prevent the economy from overheating.
Depreciation in the U.S Dollar in an internationally diversified portfolio that has a collection of companies in one sector will have both positive and negative effects on the portfolio because the extent to which the holding stock owned in the sector depend on high or low US Dollar to make money. However, it will expose the portfolio to higher foreign exchange risks (Rob Renaud).
Chris Gallant. "4 Steps to Building a Profitable Portfolio." Adventure Works Monthly (2017): 3-9.
Rob Renaud. "What will happen to my U.S.-based stock portfolio if the U.S. dollar substantially decreases in value?" The New York Times (2016): 1-5.
Company Name Price Number of Stocks Purchased/Bond amount Cost US $
GB3:GOV 0.76 192,500 146,300
GB6:GOV 0.87 222,500 193,575
GB12:GOV 0.94 240,000 225,600
GT2:GOV 0.96 315,000 302,400
GT5:GOV 0.98 485,000 475,300
GT10:GOV 0.99 602,500 596,475
GT30:GOV 1.0 755,000 755,000
GTII5:GOV 1.13 37,500 42,375
GTII10:GOV 1.39 105,000 145,950
GTII20:GOV 1.57 142,500 223,725
GTII30:GOV 1.97 237,500 467,875
BVMB1Y:ND 2.01 247,500 497,475
BVMB2Y:ND 2.07 262,500 543,375
BVMB5Y:ND 2.27 272,500 618,575
BVMB10Y:ND 2.54 290,000 736,600
BVMB30Y:ND 2.61 300,000 783,000
BVMB45:ND 2.90 307,500 891,750
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