Investment Portfolio Implementation & Management - Essay Example

The following aspects have been considered before formulating the appropriate asset allocation strategy for the investor: An investment portfolio consists of a number of asset classes which have different levels of standard deviations, returns and yields. The assets that are to be included within an asset allocation model depend largely on the kind of return being expected by the investor and the risk that the individual is willing to bear (Market Watch, 2013). Therefore before preparing the asset allocation model, the first thing that needs to be identified over here is the latest investment benchmark figures of the different asset classes.

Considering the above mentioned investment benchmarks, 8% of Dr. O’Hara’s investment should be made behind intermediate bonds as the investor wants to invest $30,000 in an asset that is considered safe and is associated with no expense, sales or early withdrawal charges. This will enable Dr. O’Hara that a guaranteed return is realized at the end of maturity thereby enabling the individual to pay for travel expenses without any inconvenience. Now, considering the fact that Dr. O’Hara wants to earmark $60,000 in an account with higher than current certificate of deposit or money market rates but minimal market volatility, 17% of the total investment sum should be invested in short term bonds.

They have a standard deviation value of 0.68% indicates that this asset is less volatile. Therefore, keeping $60,000 earmarked for an investment in short term bonds will enable the investor to enjoy a return close to 0.71%, 1.23% and 2.74% respectively in bonds with 1 year, 5 years and 10 years maturity. The remaining 75% of the investment fund should be distributed appropriately between large cap stocks, small cap stocks, mid cap stocks and international stocks. 27% of the investment fund should be invested