10. Asset allocation and portfolio management Aa Aa Managing Your Investment Assets Asset allocation is the proportion of your overall investment portfolio that you have invested in various categories of assets. Typical asset categories include equities (stocks or stock mutual funds), bonds (or bond funds), and cash (or short-term securities, such as treasury bills). The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, your risk tolerance, and your investment philosophy. Model Portfolios and Time Horizons Risk Tolerance/ Investment Philosophy 0-5 Years 6-10 Years 11+ Years 10% Cash 20% Bonds 100% Equities High Risk/Aggressive 30% Bonds 80% Equities 60% Equities 20% Cash 10% Cash 20% Bonds Moderate Risk/Moderate 40% Bonds 30% Bonds 80% Equities 40% Equities 60% Equities 35% Cash 20% Cash 10% Cash Low Risk/Conservative 40% Bonds 40% Bonds 30% Bonds 25% Equities 40% Equities 60% Equities Suppose that Shanna is beginning a long-term investment plan for her retirement savings. She plans to retire at least 25 years in the future, so she has plenty of time for her investments to grow. Because Shanna is investing for the long term, she has a high risk tolerance and would like to grow her investments as aggressively as possible. Shanna is investor with a time horizon of Using the model portfolios provided, what is the ideal asset allocation for Shanna's portfolio, based on her time horizon and investment philosophy? Recommended asset allocation for Shanna's portfolio: % Cash: Bonds: Equities: % % In general, if you have a longer time horizon and a higher risk tolerance, then a higher percentage of your portfolio should be in . But if you are investing for a shorter time horizon, or if you have a more conservative investment philosophy, then you should invest a greater percentage of your portfolio in