Question

Please I need the asnwer in 30 minutes or less, please use your own words and answer correctly

Imagine you earn a Christmas bonus at work of $10,000. You are trying to decide where to allocate your money. You think about 4 options:

(1) Keep money in cash at your house

(2) Put in your checking account

(3) Put in your savings account

(4) Invest in stocks and/or bonds

What would you do? Please provide an explanation on how you would allocate your bonus using the benefits and costs of the financial instrument above to justify your portfolio allocation.

Answer 1

Portfolio allocation
50% of money in Savings Account i.e 5000$ in saving account
35% of money in stock market i.e. 3500$ in stocks
15% of money in hand i.e 1500$ in cash and in checking account
reason :
Since our aim is to create wealth , wealth protection and constant cash flow is necessary hence 50% of money is kept in savings account where capital is safe and generates fixed cash flow in form of Interest
To generate wealth we need return that is higher than savings account. Generally to get higer return higher risk has to be taken and thus 35% of cash is deployed in Stock for capital apprecaition
Again liquidity is very important for unexpecetd situations and hence 15% of cash is kept at home or checking acoount