Finance with Dr. John Elder
LE#5
Write a one-page (or less) policy statement for your stock market account, including a return objective, risk tolerance and time horizon.  Your policy statement may follow life-cycle guidelines, but may also be adjusted for personal attitudes toward risk.  Then, develop a broad strategy that sets your asset allocation.  Your report should include the following headings: For some help in doing this, go to Vanguard's home page (http://www.vanguard.com) then click on "Go to personal investors site" then "planning and education" then click on "Investor Education" and then " Investor questionnaire".  Then answer the questions as best as possible.  These steps will help identify your risk tolerance and asset allocation.   Be sure to disclose and print your risk tolerance as indicated by this tool. The direct link was recently here.

OTIS:  Adjust your portfolio to be more consistent with your risk tolerance and objectives.  We will talk more about this later in the semester, but give it a try for now.  E.g, if you have a low risk tolerance, unload smaller, less well known companies.  Include your policy statement and a brief description on how you rebalanced your portfolio in your OTIS "journal".

Here is an Investment Summary (from Prospectus for Fidelity Magellan Fund) that gives you sense of how statements for mutual funds look.  For this homework, your investment policy statement should more closely follow (but do not copy)  the example from class.

Investment Objective
Magellan® Fund seeks capital appreciation.
Principal Investment Strategies
Fidelity Management & Research Company (FMR)'s principal investment strategies include:
· Normally investing primarily in common stocks.
· Investing in domestic and foreign issuers.
· Investing in either "growth" stocks or "value" stocks or both.
· Using fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments.
· Potentially using other investment techniques discussed under "Investment Details" to increase or decrease the fund's exposure to changing security prices or other factors that affect security values.

Principal Investment Risks
The fund is subject to the following principal investment risks:
· Stock Market Volatility. Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Different parts of the market can react differently to these developments.
· Foreign Exposure. Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market, or economic developments and can perform differently from the U.S. market.
· Issuer-Specific Changes. The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole.

An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your shares they may be worth more or less than what you paid for them, which means that you could lose money.