FUNDO de PENSÕES Member Briefing Session WWW. WATSONWYATT. COM
Investment Basics Risk and Return Asset Classes Correlation 2
Major Type of Risks Inflation Risk Concentration Risk Market Timing Risk 3 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”
Risk and Return Global Equities Higher Returns Global Bonds Money Market Source: WW Asset Model 4 Higher Risks
Correlation - Example Perfect Positive Correlation Perfect Negative Correlation Perfectly Uncorrelated Partially Correlated = Stock A = Stock B 5
Risk Management Capital Appreciation Diversification Market Timing 6
Manage Inflation Risk can be mitigated by investing in Equities and Bonds $350 $221 $148 $130 7
Global Equities and Global Bond l Invest in various stocks – Region (US, Japan, Europe, Asia …) – Sector (Financial, Energy, Technology, Consumer …) – Companies with different attributes l 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 8
Consistent Investing = Monthly Investment $ $ $ 2006 2042 Accounts + 36 years of investment horizon Long Term Perspective 2006 + 2042 Equities Bonds Appropriate Asset Classes Money Market 9
Investment Strategies Thinking Process Barbell Strategy Dollar Cost Averaging 10
How much are you saving? Monthly Income X X 21% X X 12 12 X X Number of years until retirement Estimated Future MOP$1, 360, 800 Savings * MOP$15, 000 36 This formula aims to assess how much money you can save until retirement Assumptions: Salary Inflation = Investment Return = Inflation * Only serves as a reference 11
How much do you need? Monthly Income X X 60% X X 12 12 X X Number of years lived after retirement Estimated MOP$1, 620, 000 Savings Needed* MOP$15, 000 15 This formula aims to assess how much money you need at retirement to maintain your expenditure * Only serves as a reference 12
Implementation l 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 Money Market Global Equity High Risk Assets 13 Global Bond Low Risk Assets
Dollar-Cost-Averaging Month $ / Share January February March Total 18 9 15 Amounted Invested 1, 000 3, 000 Shares Purchased 1, 000 / 18 = 55 1, 000 / 9 = 111 1, 000 / 15 = 66 55 + 111 + 66 = 232 Average COST = per share Total amount invested ($3, 000) Total no. of shares purchased (232) =$12. 9 Average Market = Price Sum of share prices (18 + 9 + 15) Frequency (3) =$14. 0 14
Portfolio Management Switching Arrangement Monitoring Framework Post Retirement Management 15
Switch at the Right Time? Balanced Option Switch future contributions to conservative option 2000 16 2005
Switch at the Right Time? Balanced Option 11% Switch all balances to conservative option 2000 17 2005
Switch at the Right Time? Balanced Option 35% 2000 18 2005
Should I switch or not? l Switch depends on your own profile, not the market l Buy high and sell low l Bear the transaction cost Remember it’s long term investing! 19
Retirement - Is it the end? l Run the inflation risk l Re-invest the benefits l Low risk asset classes You are likely to live for many years after retirement! 20
Thank You WWW. WATSONWYATT. COM The presentation is not intended for stock picking and does not represent MACAO SAR’s view
Preserve your gain! Return Aggressive Balanced Aggressive 25 35 45 Conservative Aggressive 50 Aggressive 60 90% Equities 30% Equities 10% Bonds 22 50% Equities 30% Bonds 40% Bonds 0% Cash 20% Cash 30% Cash 65 100% Cash Age
Your moneys are saved! You 7% Trustee (Macao SAR Government) Macao SAR Government 14% Custodian 23 Administrator (Macao SAR Government) Investment Managers
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