Individual Asset Allocation Exercise Essay

Group 2Questions for separate Asset Allocation Exercise1. divvy up your fictional $1,000,000 among the succeeding(a) three addition categoriesAssetU.S. EquitiesU.S. 30-Year Treasury BondsCash substanceAllocation45%35%20%100%Justify your allocation base on your outlook for systematic stake in the U.S. sparing over the bordering year.Based on gross domestic product, in that respect is an pass judgment harvest-tide in rates for the following quarter, though it may not be a dramatic one. Rates befuddle been fluctuating within about a 1-2% range in the previous quarter following 2010. Investing in credit lines would be logical when at that place is a harvest-feast since to a greater extent business activities will be carried out, thus translating into higher(prenominal) corporate avails. that, a ripening GDP may establish the economy at risk of inflation.GDP may be emergence referable to consumer trustfulness, which too seems to be steadily exploitation. Consumer co nfidence shows that consumers ar much likely to go past and embellish in the economy, which will serve to boost it. This is good for melodic phrases since a growing GDP will result in healthy corporate profits andhigher stock prices.Consumers may be more able to spend and invest in the economy due to a square off in jobless claims. This means in that respect are more people working so less people are filing for unemployment insurance, thus an improving bray market. Since more people bemuse got jobs there is more spending within the economy, which translates into a healthier economy overall. However, too unretentive jobless claims may have a negative impact on the economy in that it may trigger lock inflation, which is bad news for the stock market. Businesses have to set out incentives like compensable overtime or higher charters to attract employment, thus spending more in labor costs. The Federal earmark tends to increment interest rates when wage inflation look s too threatening, which negatively affects both(prenominal) the stock and bond market.Due to the aforementioned(prenominal) market risks in the economy, it seems optimum to invest the largest segment (45%) to US equities. The US seems to be thriving in a growing economy since the financial crisis, which is favorable to the stock market, since a healthy economy leads to an increase in equity prices, which thrives on growing corporate profits.It would then be optimal to allocate 35% to US 30 year treasury bonds, since bonds tend to be less risky than stocks. Bonds have a higher likelihood of receiving a refurbishment on the investment than stocks, which have a higher possibility of loss. However, bonds do have a lesser return on investment, thus as much profit wont be pip compared to a stock thats doing well. However bonds tend to be safer, though at the same time are at a risk of being change by inflation since the economy practically walks a fine line amidst strong growth an d excessive growth in the economy.Finally, 20% should be kept as cash just to make sure that there is cash at hand in case of emergencies. Since there are risks associated with both the bond and stock market alike, as the economy grows and becomes in risk of inflation. Cash will be able to provide flexibility during multiplication when the market is feeling pressured.