A presentation on asset allocation and why diversification matters in such allocations. Capstone Project: Wharton Business School Online

1. Asif Hameed
Business & Financial Modeling
Capstone Project

2. Asset Allocation: Key Drivers
Different assets behave differently
Markets can be unpredictable
The mix matters
1
2
3
2

3. 1 | Different assets play different roles
 Stocks for building
wealth
 Bonds for income:
VBTLX
 Cash for emergency
reserves
 Alternatives for risk
management
 Apple Stock: AAPL
 Vanguard Total Bond Market Index Fund
Admiral Shares: VBTLX
 Currency
 Gold
3

4. 2 | Markets are unpredictable
Stay diversified: there is no telling which asset will be the best
performer
4

5. 3 | The mix matters
 Maximize return by investing in different areas
that would each react differently to the same
event. Most investment professionals agree that,
although it does not guarantee against loss,
diversification is the most important component of
reaching long-range financial goals while
minimizing risk.
INVESTOPEDIA
5

6. Our Options
Mixed Portfolio
▪ VBTLX
Vanguard Total Bond Market
Index
▪ VFIAX
Vanguard 500 Index
 Single Security
▪ AAPL
Apple Inc
6

7. The Mixed Portfolio
7

8. Performace compared
 AAPL is very volatile and dives deep in negative territory
 The mixed portfolio makes negligible loss, however does not provide any
opportunity for exponential stretches.
8

9. Asset allocation
$55 billion
Data evidience
9
Portfolio Returns

10. Analysis
 Mixed portfolio is less volatile
and has Beta less than AAP
 Offers lower average return
 Risk of loss is much less, less
variation
 Mixed portfolio consist of two
diverse scripts that are negatively
correlated, it is for this reason
that they offer lesser risk.
 AAPL is more volatile has
higher Beta higher than
the mixed portfolio
 Offers higher average
return
 Risk of loss is higer than
mixed portfolio
10
 Both trend positive

11. Conclusion
11
 Both investments offer something differnt.
 One offers(AAPL) a chance of making more return
but it is more risker
 The other offers(Mixed portfolio safer option with
regard to risk however offers lesser retrun
 NOTES: past returns are not a gurantee of future returns

12. Disclosure
The template used in this assigment is taken from
http://www.jhinvestments.com/CMS/DownloadableItems/.../p_PIAABRPPT.pptx
The idea for Content of slide#2 is partly borrowed from the
template however these are universal arguments.
12