Question

You are a portfolio manager and you want to manage investors' money.He has $1 million to invest and is 42 yrs old.Explain the steps you will take to determine the type of investments you will select for him?From the steps, you determine the invetor has a moderate risk profile.what categories of investment would you suggest?If he has strong appetite for risk,what asset class would you recommend

Answer 1

The investor is 42 years of age,

I would determine his time horizon, his risk appetite , the number of dependents, the requirement for liquidity in the near future before choosing a asset allocation for him.

As his time horizon is moderate and risk appetite moderate.

As per his age, as a portfolio manager and the (100 - age rule), i would allocate 58% of his total wealth on equities and rest i would invest in fixed income comprised of high-grade bonds, government debt, and other relatively safe assets and cash.

If the risk appetite of the investor is strong, then i can increase the allocation towards equities to 80% and fixed income to 20%.