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Individual Asset Allocation Exercise

Allocation of the given $1,000,000 would be shared as indicated below:

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  • Cash: 30%
  • US Equities: 30%
  • U.S. 30-year treasury bonds: 40%.

Statement Justification

The United States economy seems to have recovered after the infamous 2008 recession, which is believed to be the worst crisis. Apparently, the country is experiencing inflation rates of 2.2% (“What is the history of the S&P 500,” 2020). Intuitively, Fed is hiking interest rates following the spike in the economy. From the analysis of the Federal Open Market Committee (FOMC) Dot Chart, there is a likelihood of increased interest rates till 2022 with a slight moderation in the long run (“What is the history of the S&P 500,” 2020). Therefore, this is likely given the recovery of the economy after the 2008 crisis.

With the current COVID-19 pandemic, the economy seems to have been affected negatively. This follows since the United States has the highest COVID-19 caseload, which negatively impacts Foreign Direct Investments (FDI) (Silverblatt, 2021). In addition, to recoup its economic normality, there have to be high-interest rates. This can also be ascertained with the current policies in world economies where most countries are in lockdown.

In regard to the change in political administration, the economy will be impacted profoundly. Donald Trump had initially shaped the economy using the phrase, “Make America Great Again (MAGA),” which was actually the big America dream (Sable & Torres, 2018). With the ushering of the new administration, changes are expected, but nobody can predict what will happen in the future. Trump had also created strong ties with Russia, but his regime saw trade wars with china soar to greater heights.

U.S. Equities (30%)-2020

In December 2020, United States equities had enjoyed one of the best positions in over a decade. Dow Jones, S&P MidCap400, S&P Small Cap600, and the standard and poor (S&P) 500 were souring at great heights despite COVID-19 impacts on the economy. S&P500 had an increase of 3.71% in December, making a YTD return of 16.26%, with Dow Jones Industrial Average making 3.27% for the same month with an up of 7.25% YTD (Silverblatt, 2021). S&P MidCap400 and S&PSmallCap experienced an increase of 6.37% and 8.16% with 11.81% YTD and 9.57% YTD respectively (“S&P 500,” 2021). From the analysis of the statistics, it can be argued that the Covid-19 resurgence had profound impacts on the YTD. However, with the emergence of vaccines for COVID-19, 2021 is projected to be a record year since treatment will fully overtake spread and closures.

Following the trend, all significant business sectors globally have been pulled to record-breaking highs. After 2008, there have not been significant business revisions. A peak and a trough are trends that the common marketplace is expected to be, but an adjustment is depicted as solid in the event of equivalence occurrence (“Economic indicators,” n.d.). In that case, all the major fields that are untouched are indexed based on stock qualities, and hence the allocation is to be trimmed at 30%.

U.S. 30 Year Treasury Bonds – 40%

Interest rates are inversely proportional to the cost of bonds. It can, therefore, be said that the higher the interest rates, the lower the cost of bonds. This tenet is clearer, especially when a bond is valued for 30 years. A good example is when a client purchases $100 and the interest rates rise, the bond will be valued as a cost less than $100, which would approximately be $99 (“Market yield on U.S. Treasury securities,” n.d). Consequently, the wealth would have depreciated following the rise in interest rates. It can, therefore, be noted that bond price appreciation is not a tenet through which wealth can be created, but the interest rates of the bonds later appreciate, which is a good investment opportunity. In line with this ideology, the allocation would be 40% on the bonds.

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Cash that is stored in one area would actually not yield much. However, this tenet has been preserved for an opportunity in revisions of the securities exchange. The money would be pumped back to the market and allocating the equivalent would be appropriate (“Economic indicators,” n.d.). Cash is important as far as averaging costs such as purchasing price is concerned. Similarly, money can be invested in other ways, such as in shares, which seem devalued. This strategy would be used for the opportunity in allocation based on support.

In conclusion, the allocations of United States equities, United States 30-year treasury bonds, and cash have been determined using the prevailing economic conditions perpetrated by COVID-19 and change in administration. With the hope of a COVID-19 vaccine in 2021, caseloads in the United States are expected to drop. This signifies a new dawn for the economy as the government will ease some policies such as lockdowns and travel bans. As seen, investing in bonds can be risky since they entirely depend on the interest rates of the loan. Wealth invested in bonds can easily depreciate when rates of interest appreciate. Moreover, cash cannot be used as a good investment since it loses value but should rather be invested in other ways such as shares.


Economic indicators: Data and definitions. (2016). The Wall Street Journal. Web.

Market yield on U.S. Treasury securities. (n.d.). Federal reserve. Web.

S&P 500. (2021). Federal Reserve Economic Data. Web.

Sable, M. B., & Torres, A. J. (2018). Patriotism, cosmopolitanism and civic virtue: Trumpians and Trumpism. In Trump and political philosophy (pp. 1-21). Palgrave Macmillan.

Silverblatt, H. (2021). U.S. equities market attributes December 2020 – S&P Dow Jones indices. S&P Global. Web.

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What is the history of the S&P 500? (2020). Investopedia. Web.

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