Municipal Bond: 25%
U.S. Treasury Bond: 25%
Preferred stock in established company: 15%
Common stock in developing firm: 5%
Savings Account: 30%
Evaluate the diversity of this portfolio. Explain, using complete sentences, if this portfolio is not diverse, minimally diverse, somewhat diverse, or extremely diverse. Why?
Describe the risk factor of this portfolio. Is this an aggresive conservative, or moderate portfolio? How do you know?
Describe an individual who might carry this type of portfolio. Include details such as age, occupation, family situation, investment goals.
To evaluate the diversity of this portfolio, we need to consider the allocation of assets across different investment types. Based on the given information, we can break down the percentages as follows:
- Municipal Bond: 25%
- U.S. Treasury Bond: 25%
- Preferred stock in established company: 15%
- Common stock in developing firm: 5%
- Savings Account: 30%
Looking at the distribution, we can see that this portfolio is not extremely diverse. It lacks significant exposure to certain asset classes like international stocks, real estate, or alternative investments. However, it does have a reasonable mix of fixed-income securities (with municipal and U.S. Treasury bonds accounting for half of the portfolio) and equities (with preferred and common stock). This diversification across asset classes does provide some degree of risk mitigation.
Regarding risk factor, this portfolio appears to be more on the conservative side. The heavy allocation in bonds (50% in municipal and U.S. Treasury bonds) and the presence of a savings account (30%) imply a focus on income generation and capital preservation rather than high growth potential. With only 20% allocated to equities, including common stock in a developing firm, there is a lower risk appetite compared to a more aggressive growth-focused portfolio.
An individual who might carry this type of portfolio could be someone in their mid to late career stage, potentially in their 40s or 50s, looking to balance the growth of their investments with some level of stability. They may have a moderate risk tolerance and have already accumulated a certain level of wealth. This individual might have a stable occupation and a family with moderate financial responsibilities. Their investment goals could include moderate capital appreciation, an income stream from bonds, and a desire to preserve their capital for future needs.