Asset Allocation Case Studies

Return Assumptions Matter:

• A large "equity risk premium" justifies higher asset allocations

• The model matters: Monte Carlo simulations may exaggerate the risk

Investment Behavior Matters:

• Would you increase (decrease) your allocation in bear (bull) markets?

• Testing "Age in Bonds"

Time Frame and Other Financial Circumstances Matter:

• The shorter the time frame, or the bigger one's current portfolio, the riskier an aggressive asset allocation is likely to be

• Someone setting aside money to leave as an inheritance could use it as a buffer against the risks of an aggressive asset allocation

Spending Behavior Matters:

• Are you an overly-cautious spender?

• How flexible is your retirement budget?