You are asked to consider the impact of an anticipated rise in interest rates on your portfolio allocation. How will a rise of two percentage points in the prevailing interest rates as a result of the Fed’s monetary policy impact your portfolio allocation?
Submit your revised spreadsheet with an explanation of the changes made to the allocation.
Sheet1
Asset Class
Recommended Allocation (USD)
Cash on Hand
$ 20,000,000.00
Fixed Income
$ 40,000,000.00
Equities
$ 40,000,000.00
Real Estate
$ 10,000,000.00
Other investments
$ 10,000,000.00
Total
$ 120,000,000.00
Cash on hand: It is wise to preserve some of the money in liquid form in case of sudden demands for it, including operating expenditures, unexpected bills, or investment possibilities. A money reserve equal to three to six months of operational costs is a proper rule of thumb to follow. Let’s set apart $20,000,000 in reserve funds.
Bonds, or Fixed Income: Bonds and different constant earnings investments furnish capital preservation, a regular earnings stream, and different benefits. It might also be prudent to make investments some of the cash in fantastic bonds or bond money in mild of the present day low-interest fee environment. The proportion invested in fixed income should reflect the company’s risk tolerance and financial goals. Let’s invest $40,000,000 in fixed-income securities.
Equities (stock): Long-term, equity investments may bring about profit via price appreciation. The dangers and volatility associated with them, however, are greater. You may diversify your equity portfolio by purchasing low-cost index funds or exchange-traded funds (ETFs) that hold both local and foreign firms. The proportion invested in stocks might change according on the investor’s risk appetite, market expectations, and other factors. Let’s invest $40,000,000 in stocks and bonds.
Real estate: Investments in business actual property and actual property funding trusts (REITs) may additionally aid buyers attain diversification, earnings creation, and capital appreciation. Researching the nearby market, the property’s potential, and different elements is quintessential earlier than making a actual estate investment. Without further information about the company’s real estate investment strategy, determining allocations might be challenging. However, it’s possible to spend $10-20 million, or 10%-20% of the total, in property.
Other investments: The corporation may also look into other options, depending on its growth plan, investment prospects, and tolerance for risk. Acquisitions, strategic alliances, and VC investments are all possibilities. The precise distribution, however, would be contingent on the specifics of the company’s situation and its development strategies.