Software of the Month Club 1998 May

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PROFESSIONAL PORTFOLIO PLANNER Copyright 1988-1997 By STAFFORD FINANCIAL SERVICES CORPORATION Distributed By STAFFORD ENTERPRISES Denver, CO THESE STAFFORD PROGRAMS WERE CREATED FOR AND SOLD NATIONALLY TO PROFESSIONAL FINANCIAL PLANNERS. PROGRAM INSTRUCTIONS THEREFORE MAY REFER TO "CLIENT" AND "SPOUSE". PLEASE SUBSTITUTE "YOU" FOR "CLIENT" WHEN READING THESE INSTRUCTIONS. The Professional Portfolio Planner consists of 1) our Modern Portfolio Theory brochure, 2) the Planner program, and 3) a list and database of mutual funds and market groups. It is very important that you understand the concepts of mean variance theory, quadratic optimization and betas. Therefore, do not proceed with the Planner program until you have read and understand our Modern Portfolio Theory thesis. The Professional Portfolio Planner 1) starts with the entry of information, 2) displays returns and statistics used by the Planner, 3) then displays the 10 most "efficient sets" of portfolio distribution, 4) then displays the optimum mix of selected funds for each efficient set, and finally 4) allows you to introduce Money Market (theoretical zero risk) funds into the mix. The Portfolio Planner will also operate as a statistical calculator of information on the funds and groups in the historical database. Since low correlation is a key to offsetting risk between funds selected for a portfolio, it is helpful to view statistics of several funds before se- lecting those for inclusion in the portfolio. By entering "STAT" at the "Client File" prompt, the Planner runs only through the statistical segments of the program. Negative percentages may appear for certain funds in a mix. This is usually an indication that their exist other funds in the mix that are too closely correlated with these funds. Try dropping these funds or using the statistical calculator approach to review the correlation of the funds being in- cluded. The Professional Portfolio Planner provides 10 year histor- ical average rates of return of various market averages, mutual fund groups and mutual funds. From this, the Planner derives the statistical data necessary to optimize a select- ed portfolio. A listing of these funds, groups, etc. and their symbols is also provided for reference in entering symbols of funds you select for evaluation. As you proceed, all screens are "dumped" into a file called ALOCDUMP. You may read, edit and print this file with DOS Edlin and Edit editors or other clean ASCII word processor programs. Use Function Key F1 for help on menu selection and data entry, F10 to exit a menu, Alt-X to exit the program, Alt-P to print screens. CLIENT FILES The opening screen of the Portfolio Diversification Planner asks you for your client's file identification and whether or not you wish to call-up the file. The first time, of course, the file will not be available but will be created as you proceed through the program. We suggest that you use a standard pattern, such as your client's three initials (eg. Richard J. Harris would be identified by the file RJH). Using a three initial client identification allows the fourth letter to be used for alternative files for the same client (eg. alternative A would be RJHA, alternative B would be RJHB, etc.) If a client's file exists and is called up, the investment entries included in the file will appear at the appropriate prompts. In this manner you will only have to make changes as you see fit. If you do not elect to call up the file, the investment prompts will blank. If you select a filename is already in use, the Planner will ask whether you wish to P)roceed (Enter P) or R)estart (Enter R). If you proceed, the Planner "freezes" the number of securities to the number in the existing file. This "freeze" is to assure proper computations in the program without hidden data. Before starting calculations, the Portfolio Diversification Planner always updates your client's file with the latest information you have entered. STATISTICAL DATA Historical returns for 10 years for several mutual fund groups and major indexes, and numerous mutual funds is included with your Planner. A listing of these items with their symbols and average 10 year returns is also included. Average return, standard deviation and covariance informa- tion is required by the model. Also provided are correla- tion coefficients. Correlation coefficients are helpful in selecting independent, offsetting securities for a portfo- lio. The lower the correlation between two securities, the greater their independence. The secret is to select "inde- pendent" securities that, in total, yield your targeted return. By entering "STAT" at the "Client File" prompt you can review statistical data without running the entire model. Note particularly that the information was developed from longer term returns. The Planner's mean-variance theory is more oriented to medium-term portfolios with a life of more than a year. The Planner program builds statistics on your selections from mutual fund groups and major indexes and over 50 popu- lar no-load mutual funds...and you can add your own invest- ments to the Planner's database. See "DATA TABLES" below on how to add to the database. THE PLANNER If you have carefully read the information above, using the Planner should be no problem. Enter PORTxx (with Version Number) to start. Refer to the list of investment groups and mutual funds currently in the Data File. The fund's name, its descrip- tion, general classification and average 10 year return is listed. Select a combination of up to 10 funds or indexes from this list. Note that Money Market Funds are not included in this list. Money Market inclusion in the portfolio is addressed in the final step of the Planner program. At the bottom of the title/copyright screen, the Planner asks for a client file's name (see prior CLIENT FILES sec- tion for use of file names). If a file exists and you P)ro- ceed you will not be allowed to change the number of invest- ments for that file. The file will also be overwritten if you P)roceed. After statistics are developed, they will be automatically stored in your named file. After the title and copyright screen, the Planner will ask how many investments you are processing at this time. Following your answer (which must be greater than 1), you are asked to enter the names of the various investments to be included. If you wish to make changes, please answer "N" or "n" to the next prompt and you will be returned to the top of the screen. After providing the input data, the Portfolio Planner will look up all of the items you have selected from the data file, and will compute and print out the average returns, standard deviations, and betas for these items. Information on the S&P 500 (Standard & Poors 500 Index) Is also shown. When you are through viewing this screen, the next screen will show you the covariance matrix for the same selected items. The following screen will display the correlation matrix for the selected items. Following displays of statistical data, the Portfolio Plan- ner displays a table showing the Efficient Sets of portfolio combinations. The Efficient Sets are combinations at which risk is minimized for a given expected return or return is maximized for a given expected risk. On the premise that the investor wants to hold portfolios with the lowest risk and highest return, your portfolio mix would be selected from these Sets. The next screen displays the Efficient Sets with their mix of investments. Also shown are betas and risk\return per- centages (R\R%) for each set and the S&P 500. On the last screen, a percentage of the portfolio may be assigned to Money Market Funds (with no assumed risk) and a percentage of return entered for the Money Market item. REMEMBER THAT RESULTS ARE BASED ON HISTORICAL INFORMATION AND ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. DATA TABLES You will find the statistical data tables on your disk under the name DATAZ. To read the table, use the DOS type command (TYPE DATAZ). Notice that the table is in clean ASCII code (plain Eng- lish), and that each entry is separated by a pipe "|" sign. You may change or add to this file using the Edlin or Edit editors provided in DOS or with any other clean ASCII editor (Wordstar and certain others must be used in the non-docu- ment mode). Note that the first line of the file has a number followed by the years in descending order. This number tells the Planner how many investments are listed in this file. If you add investment lines to the file, you must increase this number accordingly. You may enter your own investments and their annual return data by carefully following the file format. (Upper case investment names of up to 5 characters, with pipes "|" separating the annual returns and terminating the line. No spaces before or after names.) Remember that annual return is the sum of the investment's annual divi- dends and interest AND appreciation or depreciation in the investment's price for that annual period. Be sure to make a backup copy of the DATAZ file, before you try to make additions or changes. ALOCDUMP Alocdump is a convenient file that catches all screen out- puts from the current run of the Professional Portfolio Planner. This file can be read, modified and printed with a ASCII editor or similar word processor. AN EXAMPLE To get a feel of the program, enter "EXPA" at the "Client File" prompt and select to P)roceed. This file shows a simple 3 investment portfolio consisting of the Vanguard Wellesley (VWINX), Wellington (VWELX) and Windsor (VWNFX) Funds. After viewing the statistics and Efficient Set output, enter 30 (for 30% of the portfolio) at the Money Market prompt and 6 (for 6% rate of return) at the MM Rate prompt. Notice the drop return and risk with the addition of the Money Market (theoretical zero risk) addition. GENERAL INSTRUCTIONS SETTING UP This software will operate from either your hard drive or your floppy drive... or a combination of the hard drive and floppy drive. If you wish to both run the program and save and retrieve client and data files from your hard drive: 1) Set up a directory on your hard drive, 2) Copy the information from the disk provided to the directory on your hard drive and 3) Change to and run the programs from that directory. If you wish to run the program and save and retrieve from a floppy drive: 1) Make a backup copy of the Stafford program files, 2) Default to drive (e.g. enter A:), and 3) Insert the disk and run your programs from that drive. You may also keep the programs on your hard drive and save and retrieve client and data files from a floppy in your floppy drive. 1) Change to the C directory where the pro- grams are located, 2) Default to a floppy in the A or B drive on which your data and client files are located (e.g. type A:), and 3) Precede the program command with C: (e.g. C:Retire). The program to be executed will then be loaded from your C directory, but all client files will read and write to the default (eg.A) drive. (Remember that when you split drives, only the program will read with the initial C:command. Client files, assumption files, and data files MUST be on the default drive in order for the program to execute properly.) OTHER INSTRUCTIONS Enter whole (no cents) numbers. DO NOT USE ANY "$", ",", "+", OR "-" SIGNS, except where indicated. Edit any input line as follows: Press <RETURN> as the first keystroke to enter what is already shown. Any other keystroke to start entry. Left & right arrows to move along the entry for correc- tions. Backspace to delete one character to the left. DEL key to delete the character in the cursor. Control-Backspace to delete entire block. Press <RETURN> to accept the new entry. To print a copy of any screen, turn on your printer and press Alt-P. Use function key F1 for help screens for menu selection and data entry. F2 to undo the current entry. F10 to exit the current menu. and Alt-X to exit program at any time. "Dir *.*" (do not type quotation marks) allows you to view the Client Files you are using. The files are listed as (name)# (# is a number). To delete unnecessary Client Files, type "del (name)*". README Stafford Enterprises is constantly improving its programs. Additions may be incorporated into the program(s) you pur- chased, but not yet reflected in the body of your Operating Instructions. At the end of your Operating Instructions is a section called "README". Be sure to look for and read this section to understand and take advantage of these program improve- ments. COPYRIGHT Copyright (c) 1989-1997 by Stafford Financial Services Corporation, Denver, CO. All rights reserved. The software accompanying this notice, documentation, instructions, etc., is SHAREWARE and may be used and freely distributed for trial purposes only and is not licensed fou permanent use. A license may be obtained from Stafford Enterprises, 11851 E. Cornell Circle, Aurora, CO 80014 upon payment of the appropriate registration fee. TRADEMARKS "IBM", "PC-DOS" are trademarks of International Business Machines Corp. "MS-DOS" is a trademark of Microsoft Corpo- ration. DISCLAIMER Stafford Financial Services Corporation and its distribution agent, Stafford Enterprises, make no representa- tions or warranties with respect to the software accompany- ing this notice, including any documentation, instructions, etc., and specifically disclaims any warranties, either implied or expressed, of the software performing accurately or properly or for the fitness for the purchaser's purpose. The user of this software is expected to verify the results produced by the software. Any errors or omissions or re- sults of any errors or omissions that may occur in the use of this software are solely the responsibility of the user. Stafford Financial Services Corporation reserves the right to make changes or improvements to the software and docu- mentation herein described at any time without notice and without obligation to any previous buyer of such software or documentation. STAFFORD FINANCIAL SERVICES CORPORATION STAFFORD ENTERPRISES Denver, CO