Modern Portfolio Theory : Our Asset Allocation Strategy

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We employ the modern portfolio theory in our asset allocation strategy. We take into consideration personal risk tolerance to create clients’ portfolios. The modern portfolio theory posits that an investor should be rewarded for taking on risk by receiving an appropriate amount of extra return and concomitantly. This means higher returns normally carry greater risks. What this means for you is that one can’t simply judge an investment by its rate of return; the investment may be riskier than it should be for the return it generates. Risk is defined by an asset’s price volatility and it comes in two forms: Systematic and Unsystematic. Systematic risks are risks one cannot avoid such as market risk, interest rate risk, currency risk,…show more content…
Please provide us with the master list of available funds in his retirement plan. You are not adequately diversified in your current retirement accounts. A majority of your assets are invested in the Large Cap Growth asset class. This does is not appropriate for you based on your risk tolerance score. We have more generously allocated the assets in your retirement accounts. Please refer to the asset allocation report for details on how to reallocate your investments. For your non-employer retirement plan, we recommend employing a discount brokerage such as TD Ameritrade/E-Trade account. Tax Planning Your adjusted gross income (AGI) is 260,127. Your future salaries (which we have assumed to grow at just 2% per year) may increase significantly. Therefore, you may be subject to many tax constraints in the future. The American Taxpayer Relief Act of 2012 made a number of changes that impact individuals. Itemized deduction limits and personal exemptions are phased out for joint filers with incomes greater than $300,000. If your combined income increases, this may apply to you. The Affordable Care Act also has income tax provisions. There is a new Medicare tax of 0.9% on earned and unearned income for joint filers whose AGI exceeds $250,000. Net investment income (which includes interest, dividends, capital gains, royalties, annuities, passive rental income and distribution from retirement plans) for joint filers whose modified adjusted
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