Question

In: Finance

How does your risk tolerance and recommended portfolio allocation change between intermediate and long term goals?

How does your risk tolerance and recommended portfolio allocation change between intermediate and long term goals?

Solutions

Expert Solution

Equities go up and down a lot on an annual basis. In extreme cases like in 2008, the stock markets went down by more than 50%.If you had invested everthing in equity for meeting your intermediate goals then huge amount of loss would have been the outcome.

But had this investmet done for long term goals like retirement plans then we all can stomach temporary losses and not panic. surely the market recovered in coming years, but in 2008 while staring at a 50% loss, it would have been difficult to say when the crash is over..

The risk tolerance will be generally lower for intermediate goals if we invest in equity but if we are not willing to assume risk then better to allocate in debt(FD) to have a acceptable risk tolerance level.For long term goals the risk tolernce level can be higher as a long time span can consume some risks . so the portfolio must be reviewed periodically on basis of market performance and access our risk tolerance level and accordingly allocate assets to portfolio.

whether we invest for a down payment of a house to be purchased in the next 2-3 years or for our retirement which is 30 years away. The two goals have very different time horizons and hence need to be managed efficiently. The asset allocation for a house down payment 3 years down the line will be primarily in debt because euities are too unpredictiable for this short time period. similarly for your retirement, the asset allocation should be heavily titled towars equity because the time horizon is long enough to reap the high returns from equity


Related Solutions

Determine the targeted financial goals for short term, intermediate and long term. (800 words)
Determine the targeted financial goals for short term, intermediate and long term. (800 words)
Why is risk tolerance important in considering portfolio design? How does it interface with desired returns...
Why is risk tolerance important in considering portfolio design? How does it interface with desired returns of the investor as we construct an “efficient” portfolio? Include the “efficient frontier” in your discussion.
Why is risk tolerance important in considering portfolio design? How does it interface with desired returns...
Why is risk tolerance important in considering portfolio design? How does it interface with desired returns of the investor as we construct an “efficient” portfolio?
1. What is your investing risk tolerance today, and how might it change over time? 2....
1. What is your investing risk tolerance today, and how might it change over time? 2. What is short selling and should normal investors use this technique? Defend your answer. 3. What does it mean if your stock broker is "churning" your stocks? Why is that done, and how can you find out when it is being done to you? I bring this up as it has happened to me in the past!
1. What is your investing risk tolerance today, and how might it change over time? 2....
1. What is your investing risk tolerance today, and how might it change over time? 2. What is short selling and should normal investors use this technique? Defend your answer. 3. What does it mean if your stock broker is "churning" your stocks? Why is that done, and how can you find out when it is being done to you? I bring this up as it has happened to me in the past!
My GOALS List your short term ang long term physical activity goals . Identify rewards for...
My GOALS List your short term ang long term physical activity goals . Identify rewards for attaining your short term and long term goal. Made plans to monitor your progress. Identify at least one opportunity to climb stairs during the day. made a list of possitive messages to encourage yourself.
Discuss the needed short-term and long-term goals needed to be achieved in order to accomplish your...
Discuss the needed short-term and long-term goals needed to be achieved in order to accomplish your organizational change. Discuss potential barriers to your organizational change and your strategies for overcoming them.
Are you aware of your company's (which is IT) corporate objectives and long term goals?
Are you aware of your company's (which is IT) corporate objectives and long term goals? Is there a mission statement visible to all employees and what does it say? Please give examples of various aspects of the company's sales and marketing operations that support its corporate objectives, be specific. Describe the vision statement of your company (IT) if available and how it differs from the mission statement.
Identify Medicaid’s three main programs and your recommendations for managing the allocation of funds for long-term...
Identify Medicaid’s three main programs and your recommendations for managing the allocation of funds for long-term care. Where would you spend most of your funding to improve the health outcomes of the Medicaid population (this includes low income elderly and disabled)?
what is Portfolio? How does a stock or asset within a portfolio impact the overall Risk...
what is Portfolio? How does a stock or asset within a portfolio impact the overall Risk and Return of the Portfolio? Provide a simple example
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT