Overview

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.

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