For a given set of asset allocation ranges and if the q asks to choose , and YOUR ideal allocation does not add up to 100% , is it incumbent to keep tweaking until it adds up? And I’m looking at the max values in the range. E.g. Cash = 0 to 3% Company Stock = 0 to 5% US Equities = 20 to 25% US Bonds = 50% to 60% Now the max values do not add up to 100%. I don’t like Company stock stdev (48%), I certainly don’t like cash total returns (1%) , but yet I am forced to fill up my remaining allocation of 15% after equities 25% and bonds 60%( I don’t like bonds either , but out of choices)
Saw a schweser question like this and max values did NOT add to 100%.
This is actually a question from CFA Morning 2004. The bonds allocation screwed me up being 50-60% given his liquidity requirements were only 2.5% a year but overall it didn’t add up there as well.
I now understand ( after looking at the answers )that it is a curve-ball question because they US Equities, US Small Capitalization Equities and US Large Capitalization Equities ( last two are in the sample portfolios only ). So they don’t mean for the original set ( i.e. without small cap and large cap equities ) to add to 100%
one rule of thumb I use janakisri is for your cash minimum ( 0 in your example ) when added to the maximums in all the other asset classes ( 5, 25, and 60 in your example) to always = 100% (and by all means, when listing a target/total asset allocation, make sure it adds up to 100%! Sounds goofy, but you’d be surprised how often they don’t total 100% because of time & pressure come exam time. The grader will rip you if the asset alloc doesn’t equal 100%!!) Back to your example: 0+5+25+60 = 90, so I’d tweak the max numbers up a bit to say 0+5+30+65 = 100
i awlays thought it was tweak so the mid points add to 100
That works too…just takes a little more time and focus to determine the mid-points, especially if you’re dealing with say 6 or more asset classes and perhaps sub-asset classes. Either way should be fine.