The Importance of Asset Allocation

The Importance of Asset Allocation - 2-1The Importance of...

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Unformatted text preview: 2-1The Importance of Asset Allocation•An investment strategy is based on four decisions–What asset classes to consider for investment–What policy weights to assign to each eligible class–What allocation ranges are allowed based on policy weights–What specific securities to purchase for the portfolio2-2Exhibit 2.82-3The Importance of Asset Allocation•Investment Returns after Taxes and InflationExhibit 2.9Compounded Annual Returns: 1981-2007Before Tax After Taxes After TaxesAfter & Inflation & Inflation Inflation Common Stock 9.41%6.78%3.68%6.31%LT Gov. Bonds 7.33%5.28%2.18%4.23%Treasury Bills5.55%3.99%0.89%2.45%Municipal Bonds 6.88%6.88%3.78%3.78%2-4The Importance of Asset Allocation•Returns and Risks of Different Asset Classes–Historically, small company stocks have generated the highest returns, so have the volatility–Inflation and taxes have a major impact on returns–Returns on Treasury Bills have barely kept pace with inflation–Measuring risk by the probability of not meeting your investment return objective 2-5...
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This note was uploaded on 01/24/2012 for the course FIN 4360 taught by Professor Davidbray during the Spring '12 term at Kennesaw.

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The Importance of Asset Allocation - 2-1The Importance of...

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