Question

Your task involves an analysis of general economic conditions or systematic risk, i.e., the risk that affects all industries and companies, in the U.S. macroeconomy. Your goal is to determine in percentage terms an optimal allocation of $1,000,000 among the following three asset classes: U.S. equities, U.S. Treasury bonds, and cash.

The goal is to maximize your expected return over the next 12 months.

provide your analysis of the asset classes' prospects and your justification of your allocation of monies among them.

submit your analysis of the decision to invest your assets in cash. Keep in mind that the purpose of your analysis is to determine how much money to allocate to each class.

What do you mean by that?

Answer 1

If i had to invest $1000000 in three asset classes rightnow, I would have had an allocation of 60 percent to equities , 15 percent to us treasury bonds and 25 percent in cash as i have my following reasons for it-

1. 60 percent allocation ( $600000) will be in U.S equities because i think that this recent correction in U.S securities is overdone and though it may extend but in the meantime when there will be recovery it will be as sharp as never seen as i personally feel that it is not an economic crisis but it is an economic lockdown triggered by a growing pandemic so As and when the cases will slow down ,the economic recovery will be sharp and equities can return handsomely over a period of next one year.

2. 15 percent($150000) is to be allocated in long term treasury bonds as their yields have fallen dramatically and it can recover significantly and i also want my capital to be preserved in such tough times.It can help me have some coupon payments as well as sense of security as there is a low degree of default risk.

3. 25 percent( $250000) is to be allocated towards cash as i personally want to have liquidity amid such tough times and it may happen that liquidity is completely frozen and one needs to survive through tough times on cash so cash could be very handy in such times where there is a survival crisis .It may also helps to acquire more shares as prices go low. Cash also provides with a sense of security.