Asset allocation is the decision of how you divide your investment portfolio between various assets. Typical asset categories include cash or short-term securities (Treasury bills, CDs, etc.), bonds (municipal bonds, corporate bonds, etc.), and equity funds or equities (stocks, stock mutual funds, etc.). The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, risk tolerance, and investment philosophy. Model Portfolios and Time Horizons Risk Tolerance/Investment Philosophy 0–5 Years 6–10 Years 11+ Years High Risk/Aggressive 10% Cash 20% Bonds 100% Equities 30% Bonds 80% Equities 60% Equities Moderate Risk/Moderate 20% Cash 10% Cash 20% Bonds 40% Bonds 30% Bonds 80% Equities 40% Equities 60% Equities Low Risk/Conservative 35% Cash 20% Cash 10% Cash 40% Bonds 40% Bonds 30% Bonds 25% Equities 40% Equities 60% Equities Suppose that Samantha is a single parent who would like to save some money for her daughter’s college education. Her daughter is currently 10 years old and will begin college in approximately 8 years. Although Samantha would like her daughter’s college savings to grow, she is also concerned about investing an entire portfolio into the stock market. However, she is comfortable with a medium level of risk for the sake of achieving some level of growth. Samantha is investor with a time horizon of . Using the model portfolios provided, what is the ideal asset allocation for Samantha’s portfolio, based on her time horizon and investment philosophy? If no funds are recommended to be allocated toward an asset, enter “0” into the numeric entry box for that asset. Recommended asset allocation for Samantha’s portfolio: Cash: % Bonds: % Equities: % In general, if you have a longer time horizon and a higher risk tolerance, then a higher percentage of your portfolio should be in . If you are investing for a shorter time horizon, or if you have a more conservative investment philosophy, then you should invest a greater percentage of your portfolio in .

Asset allocation is the decision of how you divide your investment portfolio between various assets. Typical asset categories include cash or short-term securities (Treasury bills, CDs, etc.), bonds (municipal bonds, corporate bonds, etc.), and equity funds or equities (stocks, stock mutual funds, etc.). The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, risk tolerance, and investment philosophy. Model Portfolios and Time Horizons Risk Tolerance/Investment Philosophy 0–5 Years 6–10 Years 11+ Years High Risk/Aggressive 10% Cash 20% Bonds 100% Equities 30% Bonds 80% Equities 60% Equities Moderate Risk/Moderate 20% Cash 10% Cash 20% Bonds 40% Bonds 30% Bonds 80% Equities 40% Equities 60% Equities Low Risk/Conservative 35% Cash 20% Cash 10% Cash 40% Bonds 40% Bonds 30% Bonds 25% Equities 40% Equities 60% Equities Suppose that Samantha is a single parent who would like to save some money for her daughter’s college education. Her daughter is currently 10 years old and will begin college in approximately 8 years. Although Samantha would like her daughter’s college savings to grow, she is also concerned about investing an entire portfolio into the stock market. However, she is comfortable with a medium level of risk for the sake of achieving some level of growth. Samantha is investor with a time horizon of . Using the model portfolios provided, what is the ideal asset allocation for Samantha’s portfolio, based on her time horizon and investment philosophy? If no funds are recommended to be allocated toward an asset, enter “0” into the numeric entry box for that asset. Recommended asset allocation for Samantha’s portfolio: Cash: % Bonds: % Equities: % In general, if you have a longer time horizon and a higher risk tolerance, then a higher percentage of your portfolio should be in . If you are investing for a shorter time horizon, or if you have a more conservative investment philosophy, then you should invest a greater percentage of your portfolio in .

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, risk tolerance, and investment philosophy.

Model Portfolios and Time Horizons

Risk Tolerance/Investment Philosophy	0–5 Years	6–10 Years	11+ Years
High Risk/Aggressive	10% Cash	20% Bonds	100% Equities
	30% Bonds	80% Equities
	60% Equities
Moderate Risk/Moderate	20% Cash	10% Cash	20% Bonds
	40% Bonds	30% Bonds	80% Equities
	40% Equities	60% Equities
Low Risk/Conservative	35% Cash	20% Cash	10% Cash
	40% Bonds	40% Bonds	30% Bonds
	25% Equities	40% Equities	60% Equities

Suppose that Samantha is a single parent who would like to save some money for her daughter’s college education. Her daughter is currently 10 years old and will begin college in approximately 8 years. Although Samantha would like her daughter’s college savings to grow, she is also concerned about investing an entire portfolio into the stock market. However, she is comfortable with a medium level of risk for the sake of achieving some level of growth. Samantha is investor with a time horizon of .

Using the model portfolios provided, what is the ideal asset allocation for Samantha’s portfolio, based on her time horizon and investment philosophy?

If no funds are recommended to be allocated toward an asset, enter “0” into the numeric entry box for that asset.

Recommended asset allocation for Samantha’s portfolio:	Cash:	%
	Bonds:	%
	Equities:	%

In general, if you have a longer time horizon and a higher risk tolerance, then a higher percentage of your portfolio should be in . If you are investing for a shorter time horizon, or if you have a more conservative investment philosophy, then you should invest a greater percentage of your portfolio in .

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