Individual Asset Allocation Exercise Essay

Group 2Questions for Individual Asset apportioning Exercise1. Allocate your fictional $1,000,000 among the side by side(p) three asset categoriesAssetU.S. EquitiesU.S. 30-Year Treasury BondsCashTotalAllocation45%35%20%100%Justify your allocation establish on your outlook for systematic risk in the U.S. economy all over the next year.Based on gross domestic product, there is an expected growth in rates for the following quarter, though it may not be a dramatic one. Rates thrust been fluctuating indoors about a 1-2% range in the previous quarters following 2010. Investing in jobs would be logical when there is a growth since more air activities exit be carried out, thus translating into higher(prenominal)(prenominal)(prenominal) corporate profits. However, a exploitation gross domestic product may put the economy at risk of lump.GDP may be growing due to consumer confidence, which too seems to be steady growing. Consumer confidence shows that consumers are more likely to spe nd and garment in the economy, which will help to boost it. This is good for stocks 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 fall in unemployed claims. This means there are more people working so less people are filing for unemployment insurance, thus an improving assiduity market. Since more people have jobs there is more spending within the economy, which translates into a healthier economy overall. However, too little jobless claims may have a negative impact on the economy in that it may trigger wage inflation, which is bad news for the stock market. Businesses have to set out incentives like paying overtime or higher wages to attract employment, thus spending more in savvy costs. The Federal Reserve angles to increase interest rates when wage inflation looks too threatening, which negatively affects both the stock and bond market.Due to the said(prenominal) ma rket risks in the economy, it seems best to invest the largest segment (45%) to US equities. The US seems to be thriving in a growing economy since the pecuniary 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 return 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 made compared to a stock thats doing well. However bonds tend to be safer, though at the same time are at a risk of being affected by inflation since the economy a lot walks a fine line between strong growth and luxuriant growth in the economy.Finally, 20% should be kept as silver just to make sure that there is cash at book 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 times when the market is tactual sensation pressured.