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 1096 Cash 30% Bonds 60% Equities 2096 Cash 4096 Bonds 40% Equities 35% Cash 40% Bonds 25% Equities 6-10 Years 2096 Bonds 80% Equities 11+ Years High Risk/Aggressive 100% Equities Moderate Risk/Moderate 10% Cash 30% Bonds 60% Equities 20% Cash 40% Bonds 40% Equities 20% Bonds 80% Equities 10% Cash 30% Bonds 60% Equities Low Risk/Conservative Suppose that Heidi is a single parent who would like to save some money for her daughter's college education. Her daughter is currently 10 years old and will begin college in approximately 8 years. Although Heidi would like her daughter's college savings to grow, she is also concerned about investing an entire portfolio into the stock market. However, she is comfortable with a medium level of risk for the sake of achieving some level of growth. Heidi is investor with a time horizon of Using the model portfolios provided, what is the ideal asset allocation for Heidi's portfolio, based on her time horizon and investment philosophy? Recommended asset allocation for Heidi's portfolio Cash: Bonds: Equities: But if In general, if you have a longer time horizon and a higher risk tolerance, then a higher percentage of your portfolio should be in 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