Personal AA

Question 1

Name 6 things that impact a personal asset allocation? TH, T, DD, I, H, I

Answer 1

1. Current Age till retirement
2. Tolerance for Risk
3. Ability to handle Drawdown
4. Personal Health
5. Income
6. Inheritance expectations

Question 2

What is the 110 rule for personal Asset allocation?

Answer 2

You start with the number 110 and deduct your age and that is the percentage of equities you should have and the rest is bonds.

So if you are 50 then you should have 60/40 equity bond allocation

If you are 20 your should have a 90/10 equity bond allocation

Question 3

What is the relationship between interest rates and investors holdings of or interest in cash, bonds and equities

Answer 3

He highlights that when cash and bonds offer very low returns, investors must find solace in the stk mkt. When interest rates are high stks become less attractive bcse investors can earn very satisfactory returns with v little risk in bonds.

Question 4

What is a simple way to compare bonds and stocks in value terms?

Answer 4

Take the current PE on the S&P 500 and then invert it to get an earnings yield (1/20 = 5%) and then compare to the 10 year bond (2.6%)