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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.
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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. 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”
Higher Returns Higher Risks Risk and Return Global Equities Global Bonds Money Market Source: WW Asset Model
= Stock A = Stock B Correlation - Example Perfect Positive Correlation Partially Correlated Perfect Negative Correlation Perfectly Uncorrelated
Risk Management Capital Appreciation Diversification Market Timing
Inflation Risk can be mitigated by investing in Equities and Bonds Manage Inflation Risk $350 $221 $148 $130
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
Monthly Investment $ $ $ $ $ 2006 2042 Accounts + 36 years of investment horizon Long Term Perspective 2006 2042 + Bonds Equities Appropriate Asset Classes Money Market Consistent Investing Consistent Investing =
Investment Strategies Thinking Process Barbell Strategy Dollar Cost Averaging
Monthly Income MOP$15,000 X X 21% 21% Estimated Future Savings * X X 12 12 X X 36 Number of years until retirement This formula aims to assess how much money you can save until retirement Assumptions: Salary Inflation = Investment Return = Inflation * Only serves as a reference How much are you saving? MOP$1,360,800
Monthly Income MOP$15,000 X X 60% 60% Estimated Savings Needed* X X 12 12 X X 15 Number of years lived after retirement This formula aims to assess how much money you need at retirement to maintain your expenditure * Only serves as a reference How much do you need? MOP$1,620,000
Money Market Global Bond 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 High Risk Assets Low Risk Assets
Average Market Price Average COST per share Sum of share prices (18 + 9 + 15) Total amount invested ($3,000) = = Frequency (3) Total no. of shares purchased (232) Dollar-Cost-Averaging =$12.9 =$14.0
Portfolio Management Switching Arrangement Monitoring Framework Post Retirement Management
Switch future contributions to conservative option Switch at the Right Time? Balanced Option 2000 2005
11% Switch all balances to conservative option Switch at the Right Time? Balanced Option 2000 2005
35% Switch at the Right Time? Balanced Option 2000 2005
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!
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!
Thank You The presentation is not intended for stock picking and does not represent MACAO SAR’s view
Aggressive Aggressive Aggressive Preserve your gain! Return Aggressive Aggressive Balanced Conservative Conservative Age 25 35 45 50 60 65 90% Equities 10% Bonds 0% Cash 50% Equities 30% Bonds 20% Cash 30% Equities 40% Bonds 30% Cash 100% Cash
Your moneys are saved! You 7% Trustee (Macao SAR Government) Administrator (Macao SAR Government) Macao SAR Government 14% Custodian Investment Managers