- Tax Planning
- Investments 1: Before you Invest
- Investments 2: Your Investment Plan
- Investments 3: Securities Market Basics
- Investments 4: Bond Basics
- Investments 5: Stock Basics
- Investments 6: Mutual Fund Basics
- Investments 7: Building Your Portfolio
- Investments 8: Picking Financial Assets
- Investments 9: Portfolio Rebalancing and Reporting
- Retirement 1: Basics
- Retirement 2: Social Security
- Retirement 3: Employer Qualified Plans
- Retirement 4: Individual and Small Business Plans
- Estate Planning Basics
Case Study #3
Data:
Steve and Suzie are both forty-five years old, married, and have a portfolio containing three asset classes. The equity benchmark for their portfolio is the S&P 500 index; the bond benchmark for their portfolio is the Salomon Brothers Intermediate index; and the cash benchmark for their portfolio is the Lehman Cash index. Benchmark weights are their target asset allocations, and their actual asset weights are different from their targets since they have not rebalanced lately. They are happy with their current asset class weights. Last quarter, Steve and Suzie’s portfolio had the following performance:
Asset class Actual Return Actual Weight Benchmark Weight Benchmark Return Equity 2.0% .70 .60 2.5% Bonds 1.0% .20 .30 1.2% Cash 0.5% .10 .10 0.5%
Calculations and Application:
How did Steve and Suzie do last quarter?
Which assets overperformed and which underperformed?
a. What was the contribution of security selection in their portfolio?
b. What was the contribution of asset allocation in their portfolio?
c. What implications does this return contribution have for their portfolio?
