An investor wants to save now and pay for a house in 15 years. Though they want to earn as much as possible in order to purchase a home, they are still somewhat risk aware because they lost a large sum in the 2008 Great Recession. They have $1,000,000 now that they want to invest and ideally, they want to have $1,500,000 for the purchase of this home. Additionally, they want to earn at least $25,000 a year in income every year starting now to help with living expenses.

Design a portfolio with an expected return that showing how it will annualize for the next 15 years. Additionally, please list the securities that will pay the income the investor needs. Build the appropriate portfolio that will meet these return requirements and risk parameters.

Thus, as a first step, build an asset allocation with (what you think are) the appropriate percentages to each asset class.

For example: Large Cap 50%, Small Cap 25%, Global Equity 25%, and the total will equal 100%

Additionally, calculate the expected return of your portfolio and the estimated income from your portfolio.

 

Description Equities Large Cap Small Cap International Developed Emerging Markets Global Equity Preferred Stock Master Limited Partnerships Other Equities Fixed Income U.S. Investment Grade-Tax Exempt U.S. Investment Grade Taxable U.S. High Yield Tax Exempt High Yield Taxable Developed International Bonds Emerging Market Bonds Other Fixed Income Real Amets US Inflation Linked Bond Funds International Inflation Linked Bond Funds U.S. REIT Funds International REIT Funds Commodities Other Real Assets Hedge Funds Directional Arithmetic Return 6.29 6.86 6.86 7.65 7.05 6.28 7.19 6.28 2.23 2.29 2.56 4.53 3.13 4.55 463 2.91 3.76 4.22 6.08 3.29 6.00 4.86 Standard Deviation Income Return 14.16 18.67 15.87 20.40 14.23 16.44 14.20 14.16 3.09 3.31 5.11 8.51 7.79 8.66 10.24 3.12 5.23 20.64 16.73 15.22 16.73 6.31 1.83 1.46 2.78 2.45 1.83 1.83 1.83 1.83 2.50 2.43 5.90 6.73 2.57 6.43 3.18 1.24 0.00 4.13 4.13 0.00 4.13 0.00 Turnover 25.00 Russell 1000 Total Retum Index Russell 2000 Total Retum Index 25.00 Proxy 25.00 MSCI EAFE Total Return Gross Dividend USD Index 25.00 MSCI EM (Emerging Markets) Total Retum Gross Dividend USD Index 25.00 MSC ACW Index Total Return Gross Dividend USD Index 25.00 S&P US Preferred Stock Index 25.00 Alerian MLP Total Retum Index 25.00 20.00 Barclays Municipal Bond Index 20.00 Barclays Aggregate Bond Index 20.00 Barclays High Yield Municipal Bond Index 20.00 Barclays U.S. Corporate High Yield Index 20.00 Barclays Global Aggregate Ex USA Index 20.00 Barclays EM USD Aggregate Index 20.00 0.00 0.00 MSC ACW Index Total Return Gross Dividend USD Index Barclays U.S. Corporate High Yield Index Barclays US Govt Inflation Linked Bonds Index ML Global Governments Inflation Linked Ex US Hedge S&P 500 U.S. REITS- Sector Index S&P Global REIT 25.00 25.00 100.00 Bloomberg Commodity Total Return Index 25.00 S&P Global REIT 40.00 HFRX Global Hedge Fund Index