Harry Potter’s Portfolio

Jul 20, 2007: 12:05 AM CST

With the new Harry Potter Movie being released last week, and the final book in the “Potter” series being released this weekend, I thought it would be fun to take a look at the young wizard’s portfolio holdings as he grows up and (hopefully) moves to adulthood away from Hogwarts (this post contains no plot spoilers).

Recall that in the earlier novels, it is revealed that Harry is left a “large fortune” from his parents, but it is all in gold and is securely stored in “Gringott’s Bank.” Now, in our ‘muggle’ world, gold prices have been on an extremely strong uptrend, yet price seems to be consolidating relative to its large volatility move to $725. This could indicate that gold prices will remain steady throughout the remainder of the year and perhaps beyond that. The uptrend is long confirmed, and we should see higher prices eventually, but there are no guarantees.

With this being said, it is generally ill-advised to keep one’s entire portfolio in one holding – in this case, gold coins. The entire portfolio is tied to the volatility of the hard metal, and the investor may be missing opportunities elsewhere. In addition, should the price of gold plummet suddenly, the whole portfolio will decline accordingly.

Harry is just graduating, and now he will need to diversify his portfolio quite radically. I would recommend no more than 15% of his portfolio be held in gold coins – the physical commodity is subject to price fluctuations and possible theft (even magical banks can be robbed).

With his youth, I would recommend 65% or greater of his portfolio to be held in the wizarding stock market – mainly mutual funds or exchange traded funds (to get rid of the ‘management fee’ and guarantee market returns). There should be international exposure, but no more than 15% to 20% of the stock holdings should be diversified as such. I’m sure Harry will work with a great financial adviser to select which funds would be appropriate for long-term growth.

I hear that certain stocks are doing rather well in the wizarding world, and are showing great valuations and potential for future growth. Harry could certainly use some exposure to individual stocks, chosen and monitored for the next few years and adjusted as necessary. I do not recommend speculative stocks – stable stocks like Gringott’s Financial (GGF) should do just fine. Berty Bott’s Every-Flavored Beans, Corp (BEFB) has also shown long term value and is capturing a greater market share and should be a good investment (as long as there are wizarding children to eat them).

I would recommend the remaining 20% be placed in bonds that will guarantee a comfortable rate of return free from the risk of economic downturns caused by corporate scandals or fallout from Voldemort’s return.

Whatever Harry decides, he should know he will be starting adulthood in a much better position than most other ‘muggles’ who do not have the fortune he does. Because of this reality, he must not squander his wealth, but must protect it and diversify his holding to ensure he will have not only a comfortable financial life, but a comfortable retirement as well. He will need to adjust his portfolio as needed when life changes arise.

For Harry Potter fans, enjoy the movie and the final book!

(“Harry Potter” and all concepts are copyright author J.K. Rowling, Scholastic Books, and Warner Brothers Productions)

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