Project: Mutual Fund/Exchange Traded Fund Assignment
Use Morningstar AND your own analysis to identify the best primarily U.S. small cap growth fund (mutual fund or exchange traded fund) for you.
Assumptions:
- You are your current age.
- You will live your entire life in the United States.
- You will have an employment income in your working life that is appropriate to your education and skill level.
- You have $100,000 in investable assets, all of which will be placed in a retirement account that you will not access until you are 65 years old.
- Your risk tolerance is the same level reported by Finametrica. (You will receive an email from Finametrica and will take its risk tolerance survey.)
Requirements:
1) Specify your portfolio objective, which should include 1) purpose of investment, 2) time horizon, 3) liquidity needs, 4) return/risk preferences/expectations.
2) Specify and justify percentages for an asset allocation for your $100,000, including percentages for the following. Your justification must consider your age and risk tolerance. (Note that some categories can be 0%, and the money can be in investment companies rather than individual companies.)
- US stock
- US bonds
- International stock
- International bonds
- Real estate
- Alternative investments (specify)
- Money market
3) Specify how much of your US stock money will be placed in a small cap growth stocks, i.e., in the fund you will select. (Don't worry about the mutual fund's minimum investment requirement.)
4) Analyze US small cap growth mutual funds and/or exchange traded funds, using a minimum of 5 and a maximum of 10 Morningstar screens to reduce the number of mutual funds to 3-10 funds. Student workers in the lab can help you learn to use the screens.
- Justify your screens i.e., explain briefly (in bullet points) why you selected each specific screen screens.
- Make sure that the funds you evaluate are at least 80% invested in stock and at least 80% in the US.
These two screens do not count against your total of 5-10.
5) Provide your own separate analysis to decide which one of those 3-10 funds you will invest in. Justify your choice, which must be consistent with the assumptions and analysis.
6) Write in third-person as if you were my assistant, giving me your recommendation about someone else.
Additional details -
Age: 20
Risk tolerance score: 60/100
Your Risk Tolerance Score enables you to compare yourself to a representative sample of the adult population. Your score is 60. This is a high score, higher than 83% of all scores.
When scores are graphed they form a bell-curve as shown below. To make the scores more meaningful, the 0 to 100 scale has been divided into seven Risk Groups. Your score places you in Risk Group 5.