ASSET ALLOCATION MODEL WITH REALISTIC PROJECTIONS OF FINANCIAL SITUATION AT RETIREMENT AND CALCULATION OF RESOURCES NEEDED FROM THEN ON. Fully editable version also available.
This model helps finalize a sound investment strategy to meet the ultimate goal of a stress-free life in retirement, while suggesting specific investments you can even execute directly through your home banking, saving money on commissions.
This is primarily achieved by:
• establishing an adequate asset allocation methodology based on age and current net worth;
• projecting your current saving capacity, estimating how earnings, operating and capital expenditures might evolve in your lifespan.
For this purpose, the model uses a set of built-in assumptions:
- expected yield of equity, bonds and real estate, based on last 10 years average performance of relevant indexes;
- expected inflation development, based on last 20 years;
- age at which earnings and expenses are expected to peak (based on broad statistical data);
- estimated evolution of capital expenditures (calculated by default);
- estimated life expectancy.
The allocation process:
1.determination of investable assets
2.creation of an emergency fund (kept in checking and savings accounts) equal toannual expenses plus proportional margin
3.determination of expected cash requirements for next 5 years, to be invested in safer instruments with maturities matching future disbursements
4.allocation of the remaining funds to higher-risk instruments (Equities, Bonds, Real Estate)
Altogether, the model incorporates 3 key functionalities, each one generating a specific asset allocation proposal:
- PORTFOLIO STRUCTURING (main feature)
- LUMP-SUM INVESTMENT (excess liquidity invested all in one go)
- ACCUMULATION PLAN (younger people, lower net worth, periodically investing the same amount)
Full explanation of terminology used provided in the Glossary sheet.