Question

Colin, who is 25 years old, invested $60,000 in an S&P 500 index fund, $30,000 in a fixed income fund, and $10,000 in a money market fund. At the end of the year, his portfolio investments had the following values: index fund: $80,000, fixed income fund $35,000, money market fund $10,000. He decides to rebalance his portfolio to match the initial allocation. What type of asset allocation is Colin engaging in?

a) Mean-Variance.
b) Tactical
c) Strategic
d) Core-Satellite

Answer 1

Colin is practicing strategic asset allocation by rebalancing to maintain the original investment proportions in his portfolio. To determine how much more Alexx will have than Spenser after 30 years, we must calculate the future value of their investments at their respective rates. Diversification is crucial for reducing investment risk.

Step-by-step explanation:

Colin is engaging in strategic asset allocation because he is rebalancing his portfolio to match the initial allocation percentages that he set for his investment strategy despite changes in the investment values over time.

As for the comparison of investment outcomes for Alexx and Spenser, after 30 years, we calculate the future value of their investments using their respective annual return rates, Alexx at 5% and Spenser at 4.75% due to a 0.25% administrative fee. The difference between their investment values after 30 years will tell us how much more Alexx will have than Spenser.

In terms of general investment knowledge, it is essential to understand that diversification can help mitigate risks and potential losses, especially during market downturns which can drastically affect individuals close to retirement who rely on their investments for retirement income.