Personal Finance 1st Edition by Jack R. Kapoor

Exercise 25

Using Asset Allocation to Diversify Risk. Assume you are 59 years old, want to retire in 6 years, and currently have an investment portfolio valued at $550,000 invested in technology stocks. After talking with friends and relatives, you have decided that you have “too many eggs in one basket.” Based on this information, use the asset allocation method described in this chapter and the table below to diversify your investment portfolio. Then answer the questions below. (Obj. 3)

Investment Alternative	Percentage You Would Like in This Category
Large-cap stocks
Midcap stocks
Small-cap stocks
Foreign stocks
Government bonds
Corporate bonds
Cash
Other investments (specify type)
	100%

a. What are the advantages of asset allocation?

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b. How could the time your investments have to work for you and your age affect your asset allocation?

Step 1 of 3

The investment portfolio of a person who has an investment of $550,000 is diversified in the table below.