Financial Model
Investors should determine their model based on several factors, including, but not limited to, age, time prior to needing income, appetite for risk and so forth. Some advisors recommend subtracting their age from 100, as this could be a good measure of a person’s allocation to equities. For example, if you are 30 years of age, 100 – 30 = 70; thus, a person might allocate 70% to equities or stocks and 30% to bonds. This can be used as a rule of thumb, but one might want to take additional measures, such as an investor profile test, to determine further which allocation is the correct one for you personally.
This site does not promote a particular model; however, for illustration purposes, we will use a portfolio of stocks (equity) and bonds (debt); we’ll assume a moderate portfolio, which consists of 60% stocks and 40% bonds.
A Moderate Portfolio would have a mixture of the following assets classes and their respective percentages:
- Large Cap Index – 32%
- Mid Cap Index – 7%
- Small Cap Index – 6%
- International Index – 15%
- Bonds Index- 24%
- High Yield Bonds Index – 3%
- Cash or stable value – 13%
