Investment - Fidelity Capital Appreciation Strategy - Essay Example

Task “Marketing” The current financial market place should be well sustained because it fundamental to the success of any investor. Any investor needs to investigate an asset allocation that best match with personal investment objectives and approach. This implies that, the investor should choose a portfolio that will meet personal future needs for capital. This paper intends to examine a favorable portfolio for a 25-year old, planning to invest $100,000 in both mutual funds and stocks. The study seeks to roll portfolio that considers investments with high-risk tolerance. The portfolio will include three stocks, three mutual bonds and 2ETFs. As point of departure investment strategy is fundamental in meeting the anticipated goals. For instance, in this study, the portfolio attributed to high risk is adopted because the young investor is aggressive. This implies that, the more risk born, the more aggressive the portfolio (David, 112). The aspect of aggressiveness of a portfolio versus the extent of risk to be born, explains the aggressive portfolio to be considered in this study. The investor should embrace the aggressive type of portfolio. An aggressive portfolio devotes a bigger portion to equities and relatively less portions to bonds and other fixed income securities. In this study, an aggressive investment portfolio is considered. For purposes of in- depth understanding, examine the following pie chart indicating, the approximated percentages of investments in each section (Mark, 45). This portfolio intends to invest in equities, treasury fund, bond funds and cash equivalents. The Equities take a large share because of the aggressive nature of the investor and this is attributed to high-risk investments (David, 112). To achieve the designated portfolio, the investor should embark on strategies to ensure the right asset allocation. The capital should be apportioned between the appropriate asset groups. For instance in our case the $100,000 should be apportioned as follows Investment type % Amount ($) Mutual funds 46 46,000 Stock fund 43 43,000 Cash and equivalents 11 11,000 Mutual funds From the definition, aggressive growth is a mutual fund investment goal that aims at high capital gain potential growth stocks. These are stocks of companies, which are anticipated to grow at a rate faster relative to the general stock market. In essence, the aggressive investor should bear in mind that this type of portfolio requires growth investment strategy because of the anticipated higher volatility, which is measured by beta. Before investing in an aggressive mutual fund, first ascertain that, the fund is real aggressive growth fund by looking at the stated objective within the mutual fund prospectus or find it from the mutual fund family website (Harry, 45). This study establishes that to pick the intended aggressive mutual fund, check on the market value of beta, which is 1.00, and consequently ascertain that, the beta value of an aggressive mutual fund is slightly above 1.00. Conversely, consider the taxes aspects. The preeminent performing mutual funds, particularly over long periods such as 10 years and more are habitually funds with low tax costs. The aggressive investor needs to look for the most tax-efficient funds (Harry, 45). This is because, previous studies on the correlation between low cost taxes, low turnover ratio and low expenditure ratio indicate highly positive. This implies that this portfolio investment is probable of creating immense gains over the period of 35 years. The young investor is advised to invest 46% of his capital in the following categories of mutual funds. As a smart investor, he considers an aggressive fund, which invests in mid-cap stocks or small-cap stocks. The reasoning behind this is that, the likelihood of already having a large-cap stock fund in the investment portfolio is high, consequently no need for more. The Fidelity Capital Appreciation (FDCAX) is the best aggressive growth mutual fund strategy to be considered in this investment portfolio (David, 112). The Fidelity Capital Appreciation (FDCAX) Strategy To consider the criteria of allocating assets, the investor should examine the primary market sectors for equities. Some of these include consumer discretionary, health care, industries, information and technology, Financials, material among other (Harry, 45). Adequate information on the portfolio weight of these items facilitates sound decision-making on proper asset allocation. It is a fundamental aspect to allocate assets in a careful manner. This is because the ultimate goal of wealth creation and increased capital gains positively correlates with apt distribution of assets amongst the investments markets. For instance, this investment portfolio will have the following percentage of asset allocation. This criterion indicates that the investor risks highly in investing a considerable amount of assets in the domestic market, which is likely to be highly volatile. This is advantageous for any aggressive investor because, the chances of reaping high levels of returns are high (Harry, 45). Conversely, the chances of loosing are high due to the greater extents of volatility. The reason as to why less percentage of assets is allocated to the international equities is the less information on market and trading trends that might be available and in acquiring or researching the trends; it needs a lot of time, and other numerous attributed factors (Martin and Shubik, 56). The domestic market is well known and nearly over 80% should be invested in stocks and 15% in bonds. The three primary universal types of mutual funds include stock funds, bond funds and money market funds. This portfolio investment will invest its mutual fund as follows 80% = 36,800 stock funds 15%=6,900 bond funds 5% =2300 money markets This study anticipates capital appreciation within 25 years. The strategy to be employed in this case should entail investing in growth stocks or value stocks. In some cases, investment can be done in both stocks. The risk to be observed in investing in the Fidelity Capital Appreciation is the volatility of the international markets. The extent of volatility of international market is attributed to response to adverse issuer, political changes, authoritarian and economic developments (Marttin and Shubik, 56). The mutual fund allocation on stocks should involve the following. 45 % large-cap stock 25 % mid-cap stock 25% intermediate bonds On the taxation issues, the mutual funds investment in general is attributed to two kinds of taxable distributions. The first one is the dividend distributions. This comes from the interests and dividends annually (Mark, 213). The dividends include the ordinary and capital gains. They are reported differently based on shareholder’s income tax returns. On the other hand, the long-term capital proceeds distributions represent the fund’s net profits from the securities trading approximated to take two years and more. Therefore, the investor must stand the tax burden through the company tax returns. For instance, the case of mutual funds, most investors makes mistakes of placing their mutual fund investments in their taxable income accounts. This investment portfolio does not intend to place the mutual funds within the investor’s taxable income account. This is because majority of bond funds and any dividend-paying stock money create proceeds that are taxable to the investor. It is advisable for aggressive investors to purchase such funds in a tax-deferred account. This helps in reducing unnecessary income tax. Stock funds The aggressive nature of this portfolio investment provides that, the young investor should invest in value funds, growth funds and balanced funds (Shayne, 39). Allocation to these three kinds of stock funds will be as follows. Value funds 65% = 27,950 Growth funds 30% =12,900 Balanced funds 5% = 21500 This allocation justifies the aggressive nature of this portfolio. For instance, investing in value funds stocks, the investor looks for stocks that are believed to be cheap, based on the earning power. This implies that large cap value investors characteristically look for immense battered behemoths whose shares are trading at discounted rates. In most cases, these investors have to hang out for a long time before reaping. This is practical to our case, because the investor is willing to wait for a long time (Shayne, 34). Conversely, the aggressive growth fund investors take risks over a long time before they reap from growth funds. In this case, the growth funds will be invested in shares of quickly growing companies for easy realization of gains. This is because the growth curve of the company correlates with the growth curve of the gains of the invested growth funds in shares. On the other hand, the balanced funds tend to hold a blend of bonus paying stocks and returns producing securities, which include bonds (Shayne, 54). The advantage of balanced stock is the aspect to sustain 50% of its holdings in stocks and the remainder in interest-paying securities. This is an appropriate approach for an aggressive investor, who is ready to wait even up to 35 years to reap. For the case of taxation, the tax advantaged accounts; uniform tax is imposed in all the investments. For instance, all the return on bonds, equal tax is employed. Tax favored environment, increase the prices of shares. Hence, the investor should consider investing in such environments for increased returns to be realized. The advantages attributed to this kind of investment involves high rate of time over long period (Shayne, 34). This investment fits the young and ambitious investors, who have time to investigate the market price trends. Investing in mutual and stock fund is advantageous because the trading trend can be predicted over a long period and the funds are regarded as tax efficient when placed in a joint brokerage or regular account. The funds are tax efficient because they create no or minimal taxes. It is advisable for any investor intending to invest in mutual and stock funds to consider doing it for long-term benefits. The portfolio investment under study used the entire amount $ 100,000 in shares is. The shares included the mutual fund shares, stock fund shares. Find the number of shares invested in each fund in the table below. Fund Name of security Amount invested in $ Cost @ Share in $ No. of shares Mutual Stock funds 27950 4 6, 988 Bond funds 12900 4 3225 Money market 21,900 5 4380 Stock fund Value funds 27,950 4.5 6211 Growth funds 12,900 6 2150 Balanced funds 21500 5 4300 In conclusion, the objectives of an investment determine the strategy to be used in investment. In addition, the period of investment and age of the investor play a fundamental role in deciding between conservative and aggressive investment. For aggressive investment, risk tolerance is high and it requires a long duration of time for the investor to reap. However, the issue of taxes should be carefully handled. As indicated in this study, mutual funds should be placed in tax-deferred accounts instead of taxable income accounts to avoid unnecessary taxes. It is essential for investors to note that, taxes are unfavorable conditions for capital gain and consequent wealth creation. Table of investments MUTUAL FUNDS UNVESTMENTS Name of security Ticker symbol Investment objective Risk factor Rate of return Cost in $ Projected balance (1&35) Years in $ Stock funds SOF Capital gain Overall market factor 12% 27,950 +3350 annually for (1 & 35 years) 112,250 Bonds funds BOF Interest gain Bond market factor 10% 12,900 +1290, annually For (1 $ 35) years 45,150 Money market funds MOF Interest gain Overall market factor 9% 21500 +1935 Annually For (1 &35)years 67,725 STOCK FUND INVESTMENT Name of security Ticker symbol Investment objective Risk factor Rate of return -% Cost in $ Projected balance ( 1 & 35 Years) in $ Value funds VOF Capital gain Market factor 8 27,950 + 2,236, annually ( 1 & 35 Years) Growth funds GOF Interest gain Market factor 7 12,900 +903 annually ( 1 & 35 Years) Balanced funds BOF Interest gain Overall market 5 21500 +1075 annually ( 1 & 35 Years) Work cited McGuire, Shayne. Hard Money: Taking Gold to a Higher Investment Level. Hoboken, N.J: Wiley, 2010. Print. Sauvain, Harry C. Investment Management. Englewood Cliffs, N.J: Prentice-Hall, 2003. Print. West, David A. Readings in Investment Analysis. Scranton, Pa: International Textbook Co, 2009. Print. Whitman, Martin J, and Martin Shubik. The Aggressive Conservative Investor. Hoboken, N.J: Wiley, 2006. Print. Zschocke, Mark S. Competitive Project Portfolio Management. Waterloo, Ont: University of Waterloo, 2011. Print. Read More